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Five reasons Australia’s growth is likely to improve
While there are a number of investment risks on the horizon, an economist has pointed to five factors likely to help drive a pick-up in Australia’s economic growth.
Five reasons Australia’s growth is likely to improve
While there are a number of investment risks on the horizon, an economist has pointed to five factors likely to help drive a pick-up in Australia’s economic growth.
Australia presently faces a number of challenges to its economy, according to Shane Oliver – the chief economist at financial services firm AMP Capital.
These threats, Mr Oliver notes, include a slowdown in housing construction, constrained consumer spending and low wage growth, falling mining investment, an expensive Australian dollar, low inflation, and the possibility of a housing price crash (though Mr Oliver says this is unlikely to materialise).
Despite this, Mr Oliver said there are five key reasons investors can expect growth to improve in the coming 12 months.
The growth drag caused by reduced mining investment is almost over
According to Mr Oliver, mining investment in Australia reached its peak “at nearly 7 per cent of gross domestic product nearly four years ago”, and has seen a steady decline since then.
Presently, it stands at only 2 per cent of GDP, and the reduction of its weight in the economy means the impact of falling mining investment has also been lessened.
A rise in non-mining investment is on the cards
Corporate investment plans for the coming year suggest a fall in business investment of around 3.5 per cent, however Mr Oliver notes this is “the best it’s been since 2013”.
Additionally, once mining investment is factored out of these plans, “this turns into an 8 per cent gain for non-mining investment,” he said.
There’s a strong increase in public investment.
In the last 12 months, public investment grew 14.7 per cent, which Mr Oliver said reflects state infrastructure spending.
Net exports will continue adding to growth
The completion of several resource projects will increase mining and energy exports, Mr Oliver said, and other service-based sectors (such as tourism) continue to look strong.
Company profits appear to be rising
Company profits have seen falls in both of the last two years, Mr Oliver said, but these now appear to be on the rise once more.
“This is a positive for investment and the flow of dividends helps household incomes,” he said.
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