Six predictions for the Australian economy in 2017
How does the Australian economy look for 2017? Most indicators point to an unremarkable year.
Recent concerns over the potential loss of Australia’s AAA credit rating highlighted the new and worrying economic environment in which we now find ourselves.
For a long time Australians have assumed that our financial wellbeing is a given. As with a lack of civil unrest, a high and constantly rising standard of living and a strong social support network, economic strength has always been understood to be a typical part of the Australian landscape, but that is no longer the case.
Buoyed through the recent global economic challenges by a booming mining sector, and without a convincing replacement for that revenue now the boom has ended, there is a strong feeling of uncertainty as to what the future holds. The official figures, while not completely negative, don’t offer a whole lot of reasons to celebrate.
If anything, 2017 appears to be shaping up to be an unremarkable one, and perhaps that is not such a terrible thing. After all, real innovation and advancement rarely happens when business is booming. When the going gets tough…
1. Economic growth
It was big news in the September 2016 quarter, and for good reason, when Australian GDP shrank for the first time since 2011. The 0.5% decline was not insignificant, and it hurt the annual growth rate, knocking it down from 3% to 1.8% - the lowest in six years.
The OECD believes the Australian economy should strengthen slightly in 2017, thanks to the end of the mining contraction and an increase in natural gas exports. State government budgets have also indicated a rise in public investment, and measures of small business profits and consumer spending are both trending upwards.
2. Interest rates - room for a rise
With house prices at unprecedented highs, particularly in Sydney and Melbourne, the OECD has stepped in and urged the Reserve Bank of Australia to begin increasing interest rates in 2017. This will help to unwind house prices, they say, and avoid a blowout. As the US Federal Reserve begins what is assumed to be a series of rises, the OECD suggests the RBA might be able to do the same without causing major rises in the Australian dollar. Speaking of the Australian dollar…
3. Australian dollar
Experts are in two minds about the potential effects of the Trump Presidency on the value of the Australian dollar. Trump’s talk of massive infrastructure spending could support a rise in commodity prices, but at the same time tariffs on Chinese exports could also damage our other great economic influence.
A straw poll by Business Insider Australia, of banks and other financial institutions, saw most leaning towards a fall in AUD value against the greenback throughout 2017.
Many SMEs continue to experience difficulty finding finance on reasonable terms, Ken says.
“Many SMEs would feel that they weren’t the ones that caused the GFC and brought the system down,” Ken says. “But through no fault of their own they now feel they are paying the price for that disruption.”
In order to remain competitive, SME owners are now having to work harder when searching for sources of financing that offer greater leeway and options than the Big Four are currently proposing.
It has become abundantly clear that an Australia-UK free trade agreement is a priority for both nations and preliminary discussions have already taken place. Of course, Britain must leave the EU before such an agreement is signed, but some of the groundwork has already been done, including an agreement to form a bilateral Trade Working Group to figure out the details. It appears as if the Australia-UK relationship will only strengthen throughout 2017.
At the same time, Brexit has introduced an opportunity for Australia to enhance its access to the EU to strengthen trade in goods and services and promote greater investment both ways.
Steven Ciobo, Minister for Trade, Tourism and Investment, said in an opinion piece in The Australian that the EU is “Australia’s largest source of foreign investment, creating jobs for thousands of Australians”. Strengthening that relationship can only be a positive in 2017.
6. Budget deficit
Reduction of the budget deficit is a long game. Few strategies will have drastic effect over the space of 12 months. Right now, the Government says, for 2016-17 we are looking at a deficit of $37.1 billion.
Over the next four years, by 2019-20, the deficit is projected to be reduced to $6 billion, or about 0.25% of GDP. In the 2017-18 financial year, the deficit should be clawed back to $26.1 billion. Budget surplus is expected to be achieved by 2020-21.
Image credit: Passion Images / Shutterstock, Inc.