1. The extended model’s forecasts: Annual growth to rise towards ~+2.8% by 4Q2017 Looking ahead, our extended version of the RBA’s wages model provides a strong signal that growth is at a positive inflexion point. Specifically, underpinned by the lagged effect of the rise in corporate profits to date, the model predicts a +90bp acceleration in private wages to +2.8%yoy by 4Q2017 (Exhibit 6) – even with the unemployment rate remaining at current levels. This reacceleration would be stronger still should either of the terms of trade (CY17: +9.3%, CY18: -7.4%) or corporate profits (CY17: +21.0%, CY18: +7.6%) surprise our conservative forecasts to the upside and/or the other variables in the model improve on current levels.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
