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Five reasons not to be gloomy about the economy

With last week’s news that the Australian economy grew at a healthy three per cent throughout 2015, one of Australia’s leading economists has offered up five reasons for investors to be optimistic.

Writing in his weekly Oliver's Insights newsletter, AMP Capital chief economist Shane Oliver noted that the Australian economy grew at a "surprisingly strong" three per cent throughout 2015.

Non-mining activity and export volumes help offset the slump in mining investment, said Mr Oliver.

But Australian GDP growth is likely to fall back to 2.5 per cent in 2016, making a further RBA cut to interest rates likely, he said.

Nevertheless, there are at least five reasons "not to be gloomy", Mr Oliver said.

First, consumer spending is growing at 2.9 per cent supported by generational-low borrowing rates and falling petrol prices, he explained.

Second, the fall in the Australian dollar is a "big positive" for manufacturing, tourism, higher education, services, farming and mining, Mr Oliver said.

"Third, Australia managed the boom better than it has in the past when booms led to inflation or trade deficit blow-outs or both and all sectors of the economy boomed together and went bust together," he said.

"This time there was no major build-up of imbalances in the economy and sectors suppressed by the mining boom have bounced back."

Fourth, annual growth 'state final demand' in the population-rich states of NSW and Victoria is 3.3 per cent and 4.6 per cent, respectively – compared to Western Australia (-4.7 per cent) and the Northern Territory (-17.7 per cent).

"Finally, by mid-next year, mining investment as a share of GDP will have fallen to around two per cent from its boom time peak of near seven per cent, meaning that the mining investment boom and its drag on growth will largely be behind us," Mr Oliver said.

 

Five reasons not to be gloomy about the economy
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