Australian Economy April Julie Toth Chief Economist Australian Industry Group

Transcription

1 Australian Economy April 2018 Julie Toth Chief Economist Australian Industry Group

2 No recession in 26 years (since 1991) but we re still quite slow and fragile. Real GDP grew by only 2.4% in Q4 of 2017 Australian GDP growth (inflation-adjusted volumes) to Dec Qtr 2017, % p.a. Source: ABS National Accounts

3 2018: Local business conditions look very positive, spreading to almost every industry. Retail is still under-performing relative to the rest Ai Group composite industry conditions and NAB business conditions indexes * Composite of Ai Group s Australian PMI, Australian PSI and Australian PCI. Sources: Ai Group and NAB.

4 Industries of growth: we are (finally) becoming more broad-based. A greater range of industries and locations are growing Australian industries output (real value-added), $bn and % growth p.a., Dec Qtr 2017 Source: ABS National Accounts

5 Locations of growth: Vic had best growth rate in and Looking ahead, WA is now recovering nicely and Qld is accelerating. Gross state product (real output), annual change Sources: ABS State Accounts and Deloitte Access Economics

6 Types of growth: investment switches from mining engineering to housing to government. Strong housing cycle, commercial recovery Key investment spending categories, $bn, to Dec Qtr 2017 Source: ABS National Accounts

7 Drivers of growth 3P s of Growth Population Participation Productivity and the AUD

8 Drivers of growth 1: strong population growth for a decade, 1.6% p.a. Underpins real demand for housing, services, infrastructure & more Australian estimated resident population (ERP) growth, to Sep 2017 Source: ABS Demographic Statistics

9 Drivers of growth 1: strong population growth for a decade, 1.6% p.a. Without it, GDP growth would be under 1% p.a., instead of 2 to 3.0% Australian GDP and GDP per capita, % change, to Dec 2017 Source: ABS Demographic Statistics

10 Population growth is driving construction in Sydney and Melbourne. Pop growth rates accelerating again in Qld and WA (and Tasmania) State population (ERP) growth, % p.a. to Sep 2017 Source: ABS Demographic Statistics

11 Drivers of growth 2: rising labour participation, especially for women. Response to stronger jobs growth (and despite slow wage growth) Labour force participation rate, to March 2018 (trend) Sources: ABS labour force Australia

12 Rising participation also means our labour market is not much tighter, despite very strong jobs growth in 2017 and 2018 (to date). Employment, labour force growth and unemployment rate, to March 2018 (trend) Sources: ABS labour force Australia

13 Skill shortages in some pockets, but total labour market still has spare capacity: unemployment 5.6% (Mar) + underemployment 8.3% (Feb) Australian unemployment and underemployment rates, to Feb 2018 (trend) Sources: ABS Labour force quarter detail

14 Drivers of growth 3: Productivity is the weak link. In Australia and in other advanced economies. So we are not growing much per capita Australia s productivity cycle: labour, capital and multifactor Sources: ABS Estimates of multi-factor productivity Australia

15 Labour market spare capacity + weak productivity + weak inflation = slow wages growth (2.1% p.a. national WPI, 1.9% in private sector) Australian inflation (to Q1 2018) and wages (to Q4 2017), % p.a. Sources: ABS CPI, LCI and WPI

16 Labour market spare capacity + weak productivity + weak inflation = slow wages growth (2.1% p.a. national WPI, 1.9% in private sector) Australian productivity and wages, % p.a. to Dec 2017 Sources: ABS Estimates of multi-factor productivity Australia and WPI

17 Sources: ABS Drivers of growth 4: lower AUD in 2017 helped exports and import replacements. Commodity prices are gently pulling AUD up Imports, exports and trade balance, $bn per month, to Feb 2018

18 Exports growth: lower AUD helps manufacturing exports and import replacements, especially food, consumables & building materials Australian dollar Trade Weight Index and Ai Group Australian PMI exports (trend) Sources: RBA and Ai Group Australian PMI

19 Exports growth: Lower AUD supports inbound tourism & education. Both sectors now investing & building for expansion Short-term tourist and business arrivals Short-term education arrivals Source: ABS, short-term visitor arrivals and resident departures

20 Business concerns Energy Future growth Fed Budget Global competitiveness

21 Success? business profits are recovering in more sectors, but gains are still concentrated in mining & finance. Investment is lifting in response. Aggregate corporate profits, nominal $bn per qtr, to Dec Qtr 2017 Source: ABS Business Indicators and National Accounts

22 Complication: steep price rises for energy inputs. For all businesses. Energy costs can be hard to mitigate, absorb or pass on to customers Input and output cost indexes for manufacturers, to Dec Qtr 2017 Source: ABS Producer Price Index

23 For 2018, Australian CEOs remain most concerned about future customer demand (as always), but increasingly concerned about skills Top concern of Australian CEOs for business growth in 2018 Source: Ai Group

24 For the federal budget in 2018: tax reform remains our highest priority, followed by infrastructure, energy ( other ) and skills funding First and second priorities for business, Federal Budget Source: Ai Group

25 Taking a global view: competitiveness is hampered by (1) labour flexibility (2) tax rates and complexity and (3) government red tape and stability problems World Economic Forum : Most problematic factors for doing business Source: World Economic Forum and Ai Group

26 Taking a global view: why is business still so concerned about tax? The OECD says our total tax burden is about average, but too much of it comes from company and income taxes. And its too complex. Source: OECD, Revenue Statistics Australia, 2014

27 Outlook

28 The brightest star in the outlook is non-mining business investment. Careful investment will lift productivity and eventually real incomes Australian CAPEX, actual and intended, by major sector, Feb 2018, annual sum Sources: ABS CAPEX

29 What sort of business investment in 2018? more companies are increasing their spending on physical CAPEX but also on staff training Australian CEO investment intentions, net balance of companies Sources: Ai Group, CEO Business Prospects 2018

30 RBA and Treasury expect steady growth in 2018, accelerating in Investment and employment trending up, unemployment down RBA and Treasury forecasts for the Australian economy RBA SoMP (Feb 2018) actual Dec 17 actual Jun 18 f GDP, % change p.a., year end f 2.75 Unemployment rate, %, year end Jun 19 f Jun 20 f Inflation (CPI), % change p.a., year end Treasury MYEFO (Dec 2017) Sources: ABS, RBA, Treasury. f = forecast. p = projection actual Dec 17 actual f f p GDP, % change p.a., year average f Household consumption, % p.a., year average Dwelling investment, % p.a., year average Business investment, % p.a., year average Employment growth, % p.a., year end Unemployment rate, %, year end Terms of trade, % change p.a., year end Inflation (CPI), % change p.a., year end Wages (WPI), % change p.a., year end p

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