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Angus Livingston and Rebecca Gredley
(Australian Associated Press)
Tax cuts, record low interest rates and a pipeline of coal and iron ore exports to China are pointing to good news for Australia’s economy.
The Morrison government’s election win is also predicted to improve business and consumer confidence after both measures fell due to uncertainty about the May 18 result.
In its latest business outlook released on Monday, leading forecaster Deloitte Access Economics says other factors helping the economy include lower bank funding costs and a modestly lower Australian dollar.
“The drought and the downturn in housing prices are hurting the Australian economy, but the global slowdown has so far been good news for Oz,” Deloitte partner Chris Richardson says.
“This is the first-ever global slowdown in which the world has actually given Australia a pay rise instead of a pay cut.”
Treasurer Josh Frydenberg said changes to lending rules would free up cash for spending, while interest rates are now at one per cent.
“There’s also real money flowing to Australians and to the kitchen table, to the hip pocket, as a result of the tax cuts, interest rate cuts and the other initiatives that we have taken,” he told reporters in Townsville.
“The Australian economy does face some challenges but it also continues to grow.”
But shadow treasurer Jim Chalmers says there is “troubling complacency” in government ranks over the real state of the economy, which is still struggling despite the good news Deloitte is predicting.
“The economy is growing at the slowest pace in 10 years. Wages are remarkably stagnant,” Dr Chalmers said.
Mr Richardson said national income growth is right on its longer term average.
But inflation and wage growth may “continue to disappoint”, as unemployment isn’t able to lower enough to help the two.
Mr Richardson believes the Reserve Bank of Australia has changed its model of where the unemployment rate needs to be before wages start to grow.
It needs to drop from 5.2 per cent to somewhere below 4.5 per cent before “wages start to party”.
“But to get unemployment down to 4.5 per cent it needs to create an extra 200,000 jobs – which is hard, and that’s why (the RBA) is asking the federal government to help,” Mr Richardson says.
Deloitte predicts the cash rate to soon fall to 0.75 per cent or 0.5 per cent, with Australia to follow the global trend of having very low rates for some time.
Mr Richardson also notes the RBA’s two recent interest rate cuts happened because the economy was not only slower, it was slower than it needed to be.
Weakness in wages is predicted to last longer than the demand for commodities from China, but the states are helping by keeping up infrastructure spending.
Deloitte predicts this combination will see the budget have a relatively brief brush with surplus before easing back into modest deficit.
Although it means Australia will benefit from long-term infrastructure, the spending doesn’t leave “much of a rainy day fund”.