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Let good times roll, says RBA
The Australian 12:00am August 11, 2018
David Uren
The Reserve Bank has forecast a period of prosperity with rapid economic growth lasting at least until the end of 2020, powered by fast-rising exports and the building of office towers and major infrastructure.
The bank’s upbeat quarterly economic outlook says the unemployment rate will drop to 5 per cent over the next two years, which should enable the Reserve Bank to start lifting its benchmark interest rate.
“The Australian economy remains on track to achieve lower unemployment and higher inflation over time,” the report says.
“Supported by accommodative domestic monetary policy and a positive international outlook, GDP growth is expected to be a little above 3 per cent in both 2018 and 2019.”
The forecasts, which are broadly consistent with those in the federal budget, include an upgrade for 2018 that suggests the strong 1 per cent growth achieved in the March quarter will be repeated in the June quarter.
The resource industry is boosting both exports and national incomes, and the Reserve Bank expects this to continue, helped by the completion of the final two giant LNG projects.
Coal prices have been much stronger than the Reserve Bank had expected, supported by growing demand from power stations in Asia, and mines are responding by lifting output.
The economy is also getting support from the federal and state governments. Investment in public engineering works has risen from 1.5 per cent of GDP to 2 per cent over the past three years. Over the past three decades, this level has been only briefly exceeded during the resources boom.
The Reserve Bank says its discussions with private companies show they are gaining spin-off benefits from public infrastructure projects in NSW and Victoria.
Government spending on running costs is also adding to growth, rising by 5.1 per cent over the past year, with increased spending on the National Disability Insurance Scheme and pharmaceutical benefits.
The Reserve Bank has been particularly encouraged by the 10 per cent lift in non-mining business investment. Its analysis shows this has mainly been driven by office construction, although hotels and aged-care facilities have also contributed to growth, as have renewable energy projects.
The Reserve Bank has dismissed the last Australian Bureau of Statistics investment survey, which found companies were cutting back their investment plans. It noted that the survey excluded some industries and types of investment, such as software. It said company profit growth was strong enough to support further business investment.
Consumer spending remains the biggest uncertainty in the Reserve Bank’s outlook, as it is not expecting wages to start rising. It says household incomes have improved as a result of employment growth, although much of this work has been part-time.
The 2.8 per cent growth in incomes over the year to March compares with a 20-year average closer to 6 per cent. “The prospect of continued low growth in household income remains a risk to the outlook for household consumption, especially given high levels of household debt,” the quarterly report said.
The Reserve Bank comments that “there is no evidence that moderate house price declines have weighed on household consumption to date”.
