Data released since the start of the year shows the outlook has improved markedly since the end of 2016. Rising business confidence is driving job creation and providing a key support to household income and consumer spending while wages growth remains weak. In 2017, we expect 1.8% GDP growth followed by 2.2% in 2018. However, as the labour market continues to tighten and wages growth grinds higher we expect GDP growth to rise to 2.9% in 2019 and 3.4% in 2020.
Monetary policy will remain supportive until there are signs of a sustainable pick up in wages growth. We expect the RBA will begin withdrawing stimulus in Q3 next year, with a relatively modest 100bp campaign finishing by Q3 2019. Australia’s high level of household debt means the RBA will tread lightly. Inflation will drift higher and reach the middle of the target band by H2 2020, but it will remain stubbornly low for the next 12 months.
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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.
