Australia: GDP growth forecasted to be near trend at 2.7% in 2018 - Westpac

Australia’s annual real GDP growth is forecast to be near trend at 2.7% in 2018, up from 2.4% for 2017, an outcome dented by a temporary dip in exports, according to analysts at Westpac.

Key Quotes

“Growth is expected to moderate to a below trend 2.5% in 2019, as the home building downturn accelerates and with consumer spending constrained by sluggish wages growth and as jobs growth throttles back. Key developments in recent months are a tightening of lending conditions; a slowing of housing markets; and a slowdown in jobs growth; which together further reduce the likelihood that activity will accelerate to an above trend pace.”

“Our first Hot Topic this month is Australian inflation, where the recent theme of softer than expected outcomes continued into the March quarter of 2018. Weakness again came through in areas we thought were at risk – particularly household goods and clothing & footwear – with housing also surprising to the downside. A near term break-out from Australia’s low inflation ‘trap’ looks unlikely with risks to the modest lift forecast over the medium term still firmly on the downside.”

“Our second Hot Topic reviews the ongoing trade dispute between the US and China and how it may affect Australia. China represents a significantly larger share of Australian trade than the US. Hence the main impact is likely to come indirectly and depends on the extent to which effects travel up global supply chains. Arguably, dynamics in China’s steel market – both domestic demand and policy-driven changes – are potentially of greater importance.”

“Our third Hot Topic provides an update on Australian employment trends by industry and by state. The 2017 uplift in jobs makes up for patchy 2016. However, gains continue to be concentrated in relatively few industries, suggesting the more recent moderation in employment growth should be monitored very closely.”