News ID: 255823
Published: 1149 GMT July 15, 2019

Reuters poll: Australian economy stuck in sub-par growth, but to dodge recession

Reuters poll: Australian economy stuck in sub-par growth, but to dodge recession
DAVID GRAY/REUTERS

Australia may be destined for another two years of sub-par economic growth as debt-laden households keep their wallets shut tight, though analysts are hopeful lower interest rates and tax handouts would help it dodge a recession.

Economists polled by Reuters forecast Australia’s A$1.9 trillion ($1.3 trillion) of annual gross domestic product (GDP) would expand 2.1 percent in 2019, down from predictions of 2.2 percent in the previous poll and 2.7 percent early in the year.

Growth was seen picking up modestly to 2.5 percent in 2020 and 2.6 percent the year after, though that would still be short of the 2.75 percent that is considered trend.

The best that could be said was no analyst forecast a recession, with the lowest GDP forecast being 1.0 percent for 2020.

A run of poor quarters has already seen annual growth slow to its lowest in a decade at just 1.8 percent as falling house prices and sluggish wages dragged on consumer spending.

The Reserve Bank of Australia (RBA) has reacted by cutting interest rates twice in as many months, taking them to an historic low of one percent, while regulators have eased rules on home loans to free up a log jam in bank lending.

Early signs are this has steadied home prices in the long-suffering housing markets of Sydney and Melbourne.

Many Australians will also be getting a tax giveaway from this month, which could flow through to consumption.

“We do not see this package as a game changer for consumption given it first comes as a rebate and subsequent tax cuts come with a considerable delay,” said Westpac senior economist Elliot Clarke.

“However, in combination with RBA rate cuts, the tax measures should at least stabilize growth, laying a foundation from which a hoped-for acceleration in infrastructure investment could drive growth back to trend.”

Plenty of risks remain, however, including the threat of an all-out trade war between the US and China, the latter being Australia’s single biggest export market.

At home, leading indicators of labor demand have also softened recently and threaten a downturn in what has been one of the strongest sectors of the economy.

At least there is plenty of scope for stimulus with core inflation down around 1.5 percent, having run below the RBA’s 2-3 percent target band for more than two years now.

Even after the recent rate cuts, the poll showed analysts expected headline inflation of just 1.6 percent for all of this year, rising slowly to 2.0 percent in 2020 and 2.2 percent 2021.

 

 

 

 

   
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Resource: Reuter
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