Australia heads back to the doldrums
Australia is growing at 2½% – not particularly strong with working age population rising by 1¾% – but now seems set to slow. Productivity growth remains poor, so 2½% growth created inflation pressure that the RBA had to respond to. The economy will head back to the doldrums of a low per capita expansion. Weaker growth is a factor behind falling EPS forecasts and the prospect of modest equity returns.
Australia has had a poor decade. Average per capita GDP growth was the lowest since the 1930s (excluding the post-1945 demobilisation). What matters for consumers is disposable income, not GDP. Per capita disposable income growth was lower than GDP, payback for the mining boom boost received through the prior decade (Exhibit 1).
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