Economic growth likely to lift over 2018: CommSec

Economic growth likely to lift over 2018: CommSec
Economic growth likely to lift over 2018: CommSec

The annual rate of economic growth eased in the December quarter of last year. But that is to be expected – figures bounce around from month to month and quarter to quarter. And it is even more understandable given the length of our record economic expansion. But economic growth is likely to lift over 2018. We share the Reserve Bank’s view that growth will be stronger this year than last year. The economy is tipped to grow by 2.9 per cent in 2018 after 2.3 per cent growth in 2017.

The release of quarterly economic growth figures is a good time to take stock. Australia has a record economic expansion with record low interest rates, below-target inflation and a jobless rate nearing a level that is regarded as “full employment”. No other advanced economy has experienced an economic expansion as long as we are enjoying in Australia. Remarkable.

Consumer spending finished 2017 strongly and will be supported over 2018 by a stronger job market, low interest rates and slightly firmer wage growth. Business spending will be supported by record profitability, domestic infrastructure projects and a buoyant global economy.

Productivity slowed in the December quarter but that is to be expected given the extraordinary lift in employment over the year. Once the new workers get up to speed, they should – in theory – be boosting output and lifting economic growth. It is an area to watch over 2018.      

It is always important to remember that two months have passed since the economic growth figures. And more recent data suggests the economy has started 2018 with solid momentum.

The Reserve Bank Governor again said this morning that the next move in interest rates was likely to be up. But there is no reason to either cut or lift interest rates at present. A further period of interest rate stability lies ahead, and the record low interest rates will be highly supportive of continued firm and sustainable economic growth.

Craig James is the chief economist at CommSec. 

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Economics Craig James

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