2017.04.2118:11:00UTC+00Australian Economy to Grow in Line With Potential Pace of 2.5 Pct Y/y in 2017-2018 - Scotiabank

The Australian economy is expected to continue being a strong performer amongst its peers of advanced economy through next year. However, the economy faces some challenges. For the whole of 2016, Australia’s real GDP grew 2.5 percent. The economy recovered in the fourth quarter of 2016 from the slump witnessed in the prior quarter.

“We estimate that the Australian economy will continue to expand in line with its potential growth rate of around 2½ percent y/y in 2017–18”, noted Scotiabank in a research report.

The near-term prospects for the Australian economy are favourable; however, the momentum is partly underpinned by transitory factors in the external sector. The nation’s mining boom has shifted to a production phase from an investment phase. Thus, higher volumes of exports are giving a temporary stimulus to the economy.

A rebound in prices of commodity from the levels seen a year ago is raising the nation’s terms of trade, supporting corporate profits and output growth. But the medium-term pricing environment for iron ore, LNG and metallurgical coal is not expected to improve, noted Scotiabank. Exporters in Australia are advancing from the recent stability in the Chinese economy, which is a destination for nearly 30 percent of Australia’s exports. However, the Australian exporters continue to be vulnerable to the inevitable deceleration in China’s commodity import demand in the medium-term.

The growth of the external sector has a crucial role in smoothing out the Australian economy’s continuous rebalancing toward non-mining-based activity. In the quarters ahead, the external sector’s contribution to the economic growth will diminish and the nation’s long-term outlook would greatly be dependent on the strength of consumer spending and non-mining investment, stated Scotiabank.

“We expect a pick-up in non-mining investment over the coming quarters, which reflects higher residential construction activity and public infrastructure outlays”, added Scotiabank.