SYDNEY (Reuters) - Australia’s economy looks set to pick up pace over the next two years as surging employment bolsters incomes and state governments splurge on infrastructure, though a mountain of household debt still looms as a concern.
Economists polled by Reuters estimated Australia’s A$1.7 trillion ($1.33 trillion) of annual gross domestic product (GDP) would grow 2.3 percent in 2017, unchanged from July’s forecast.
The economy expanded by only 1.8 percent in the year to June but mainly due to a weather-beaten contraction in the third quarter of 2016. Once that negative drops out of the calculation, the pace should spring ahead.
Growth was then seen accelerating to 2.8 percent for both 2018 and 2019, extending Australia’s run of 26 years without a technical recession.
The upbeat outlook is reflected by surveys of business, which have been showing the best conditions since before the global financial crisis, with sales, profits and jobs all improving.
“Leading indicators from the surveys clearly point to an improving economy, at least in the near-to-medium term,” said NAB chief economist, Alan Oster.
“A positive by-product of that has been solid outcomes for hiring intentions and capex plans for the year ahead.”
The labor market has been a stand out performer with a huge 372,000 jobs created in the year to September, the fastest pace since 2008. That has supported incomes and spending in the face of unusually subdued wage deals.
Healthcare, education and construction have all been major generators of jobs, driven in part by increased public spending. Australia’s state governments have been particularly active in infrastructure investment and helped revive economic growth in the June quarter after a slow start to the year.
Kristina Clifton, a senior economist at Commonwealth Bank of Australia, estimates infrastructure work will add up to 0.7 percentage points to GDP growth in the year to June 2018 and generate around 36,000 new jobs.
Yet stubborn softness in wages has kept inflation in check, suggesting there is still plenty of slack in the economy.
Analysts expected consumer price inflation to run at 2.0 percent this year, the very bottom of the Reserve Bank of Australia’s (RBA) 2-3 percent target range, and to pick up only gradually to 2.3 percent by 2019.
Such a benign background gives the central bank plenty of scope to keep policy loose and markets are not pricing in a rise in the current 1.45 percent cash rate until late 2018.
That is likely just as well since households are sitting on record levels of, mainly mortgage, debt and many could not bear a sharp rise in borrowing costs.
Polling by Khushboo Mittal and Shaloo Shrivastava in Bengaluru; Editing by Sam Holmes