Net exports, household consumption to primarily drive Australian economy

The Australian economy is unlikely to fall into recession in the next two years, unless certain unexpected global disruption comes up, according to St George Economics. According to national accounts of Q4 2015, economy expanded marginally more than the new potential rate of 2.75%, added St George Economics. Due to weaker population, Australia’s future trend of GDP growth pace is viewed to be lower as compared to what was in the past.

“We expect the Australian economy will grow at close to the lower potential growth pace of 2.75% in 2016 and maintain that pace in 2017”, noted St George Economics.

Household consumption and net exports are likely to primarily drive the Australian economy. Household sector is expected to grow with the help of ongoing population growth, job growth, low interest rates and wage growth, according to St George Economics.

Moreover, trade sector is expected to contribute more to the economic growth given the increased capacity of export in the resources sector and expansion of the country’s competitiveness in LNG, mining, international education and tourism, added St George Economics.

However, business investment is expected to be a major drag on the economy in the next year. Even if non-mining business investment improved in H2 2015, it cannot offset the major amounts spent during the boom in resources investment. Several of the major projects have ended or are near completion. Meanwhile, the jobless rate is likely to remain near present levels in the next twelve months given the slightly weaker population growth in the past, according to St George Economics.

“Pressure for wage growth will remain subdued which suggests that core inflation should remain in the 2-3% range”, added St George Economics.