Australian growth to remain below trend into 2017: Deloitte

A leading economic forecaster says growth in Australia should remain below trend for two more years as the country navigates China’s slowdown, but low interest rates and the falling dollar will help to cushion the blow.

The latest Business Outlook by Deloitte Access Economics identified the economic slowing in China as the biggest obstacle to global growth.

It said one of the biggest issues was an oversupply in the mining and energy sectors, at a time when demand was low.

A partner at Deloitte Access Economics, Chris Richardson, said like Australia, which export to China were going to continue to bear the brunt of the pain.

“There is still excellent news out of the US, and that is the world’s largest economy,” Mr Richardson said.

“But China has been the biggest contributor to the world’s growth and it is suffering considerable growing pains of its own and that’s a particular problem for Australia.

“We are very dependent on China.”

Despite that, Australia was expected to ride out China’s slowdown fairly competently.

Mr Richardson said the most recent resources boom could have ended in Australia’s worst ever bust, and that had not been the case.

“Australia just had the biggest boom it’s ever had and to merely end up with a phase of below-trend growth, that’s pretty good,” he said.

“In fact, Australia remains within sight of the world’s record for a period of unbeaten growth.

“We’re only a couple of years behind the Dutch on that score, and looking good.”

Federal budget could take long time to reach surplus

The Deloitte Access Economics report said it would take two years for the lower Australian dollar to have its maximum positive effect on the economy.

Mr Richardson said the depreciation in the currency, combined with historically low domestic interest rates and very weak wage growth, would help to shore up the economy, even as demand from China abated.

But as far as the federal budget was concerned, the report suggested it could take a very long time to return to surplus.

The slowdown in China, increased spending and legislative opposition in the Senate were seen as the key issues that would keep the budget in deficit.

Government spending was also at levels usually only seen during recessions, and that was only set to increase as disability insurance costs matured.

Mr Richardson said a period of deficits was likely for the foreseeable future.

“If China is stuck in low gear for an extended period, if commodity prices like coal and iron ore stay low, and the Senate doesn’t play ball with whoever happens to be in government at a given time, we cannot on that basis see a budget back in surplus at any stage,” he said.

Source: ABC News