Australia’s shock economic contraction in the September quarter last year was likely a one-off, and the economy should keep growing for the rest of 2017, according to some of the country’s most senior economists.
It means this year Australia should pass the Netherlands and snatch the record for the world’s longest run without a recession.
The annual survey of macroeconomic forecasts from the Australian Business Economists (ABE), released on Tuesday, shows 17 members of the ABE’s 21-member executive committee believe the economy will keep growing through 2017.
It was a unanimous decision of those surveyed – four members could not take part because they work for government or the Reserve Bank.The Netherlands holds the record for 26.5 years of uninterrupted growth.
If the ABE’s executive committee is correct, Australia will pass that record at the end of the June quarter (with the June quarter figures released in September).
The group’s annual forecasting conference will be held at the Reserve Bank offices in Sydney on Wednesday, where they will discuss the forecasts.
Justin Wolfers, professor of economics and public policy at the University of Michigan, will talk to the group about the state of US politics and policy under Donald Trump.
The ABE’s executive committee was asked about Trump in this year’s annual survey. Most committee members said they expected Trump’s policies to boost US economic growth in the short-term, but over the medium to long-term they were divided.
Some members predict a “boom-bust” economic scenario, expressing concern about the inflationary impact of policies, the ageing population and low productivity. But other committee members expect a sustained boost to growth, with Trump’s policies driving a lift in the potential rate of growth, boosting investment and spurring productivity.
The election of Trump has encouraged Australia’s business community to call loudly for business tax cuts. Since Trump plans to cut the US corporate rate to 15%, Australia should at least cut its rate from 30% to 25%, they say.
Despite the likelihood that Australia will pass the Netherlands’ growth record this year, the ABE executive committee thinks economic conditions will still be sluggish this year. They think underlying inflation will remain near 2% for the next two years.
They expect wages growth to remain weak through 2017 and 2018.
They think the unemployment rate will edge slightly lower by the end of 2017 to 5.6%, and then again to 5.5% by the end of 2018.
And they expect the budget deficit to improve over 2017 and 2018, with a median forecast deficit of $36.1bn in 2016-17, and $26.6bn for 2017-18.
When asked what the policy priorities of the Turnbull government should be in 2017, many committee members highlighted the importance of budget repair.
However, a few said the government should not be concerned about losing its AAA sovereign credit rating.
They also highlighted the need to prioritise tax reform – particularly company tax reform – the goods and services tax, tax concessions and infrastructure spending.
Asked about whether higher iron ore prices would prevent the loss of the AAA rating, treasurer Scott Morrison told Sky Business the price had improved since the December mid-year update, which would help the budget if it was a sustained rise.
Morrison also reserved the right to draw down on the Future Fund in 2020-21 to help achieve a budget surplus.
He noted the ability to draw down from that date was part of the system set up by John Howard and Peter Costello, and under Labor changes those sums were counted in the budget.