The latest edition of Deloitte Access Economics’ Business Outlook reports that we have entered 2017 with a promising start to global growth, despite a number of economic and political risks. China has been throwing the kitchen sink at its economy; India is looking as if it will shrug off the cash crunch of recent months; and New Zealand is looking pretty comfortable too. All of this as the US economy looks to be supported by growth in business spending, while both Germany and Japan are at full employment.
And there has been good news for the Australian economy as well. China is delivering us a surge in national income thanks to stronger demand and stronger commodity prices – the likes of which hasn’t been seen since the height of the resources boom. It has ended the so-called ‘income recession’ weighing on Australian wallets and purses since late 2011 – and not with a whimper, but with a bang.
Even better, China’s largesse arrived at the same time as new mines and gasfields, which were commissioned during the glory years of the resources boom, hit their straps. That has meant not merely better prices for what we sell to the world, but also increased quantities of those sales.
In fact, we may see the first account surplus since 1975. It’s not a done deal but it will be close, as the world throws money at Australia via high prices for the likes of iron ore and coal, while a number of gas export projects are now starting or ramping up production. This success on the trade front won’t last forever, but it looks to be great news for both this financial year and next.
At the same time the world has gone back to throwing money at Australia, the Reserve Bank cut interest rates twice in 2016. Not surprisingly, that pumped up this nation’s already overly botoxed house prices – resulting in a spectacular lift in wealth for some individuals and a housing affordability crisis for many others.
Government spending is providing support to economic growth, with strong revenues for many state governments (given the booming property market) being recycled as additional infrastructure spending. Better news on company profits is giving the Federal Budget a bit of breathing room for the first time in ages, though much more work needs to be done to rein in persistent deficits.
Interest rates remain at record lows but global markets are pricing in more inflation and growth, and coming years will see interest rates rising again. We expect Australian interest rates to follow suit, though not until 2018.
Let’s be clear – this is Deloitte Access Economics’ ‘most likely’ outlook for Australia. But there are a range of scenarios that could push us in very different directions. What if China’s rise is temporarily ‘trumped’? What would Australia look like if we successfully slipstream Asia’s new booms? Or how would Australia benefit if we get better at being ‘cyber smart’? These are three scenarios detailed in Deloitte’s latest Building the Lucky Country series. What’s over the horizon? Recognising opportunity in uncertainty urges us to be less fearful in the face of uncertainty and to actively scan possible paths for the future. Unless decision-makers in Australia and around the world start to make a better fist of assessing risks and opportunities, it is likely that our future will underperform its potential.
David Rumbens is a Deloitte Access Economics partner and co-author of our Weekly Economic Briefing.