Australia: Subpar growth ahead

12/12/2016 - Report
ic_blogtagAustraliaCountry RiskFiscal PolicyGross Domestic Product (GDP)GrowthInvestment

​The Australian economy is set to grow below-trend at only 2% to 2.5% real GDP in 2017.


After a strong first semester, the economy has slowed markedly in the second half of 2016. The subdued performance was due to weak growth in investment - both public and private - and lower government consumption. Private consumption remained resilient. Net exports underperformed due to lower exports compared to imports. 


Going forward, private investment growth is set to remain weak. This reflects a structural adjustment following the end of the mining boom, pressured corporate profits, and modest prospects for the non-mining sector. Exports growth will be constrained by a limited increase in global demand on the back of modest growth in China and high-income markets. 


Back at home, private consumption should prove quite firm thanks to contained inflation and a resilient labor market. Yet any acceleration is off the cards. The culprit, in this case, is high leverage. Household debt accounts for 186% of disposable income. One should expect policymakers to phase out easing measures. A favorable policy mix combining lower credit cost for companies and supportive fiscal measures would allow gradual growth acceleration.  


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