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Australian economy set for marked improvement in 2016: Westpac

Xinhua, November 18, 2015 Adjust font size:

A lift in household spending and net exports will aid the Australian economy to a marked improvement next year, Westpac's monthly economic leading index signalled.

Westpac chief economist Bill Evans on Wednesday said despite the below trend growth in the index, Australia's economy had been steadily strengthening over the past two months, with 2016 growth likely to be 2.8 percent.

"If achieved, that growth rate will represent a marked improvement on the 2.3 percent we expect for 2015," Evans said.

The crucial source of advancement is tipped to come from a boost in household spending and net exports, which are partly driven by the services sector as the economy transitions to non-mining led growth.

However, Evans said that will only occur if there is a lift in nominal income growth, which will rely on steadying Australia's terms of trade compared to the past two years which have declined 10 percent annually.

Australian private sector wages grew at their slowest pace on record for the months to September, official figures released on Wednesday show.

AMP Capital chief economist Shane Oliver told Australia's national broadcaster the adjustment flowing from the end of Australia's mining boom and associated weak demand Australia's economy is continuing to show up in weak wages growth.

"This in turn is helping protect employment and partly explains why jobs growth [figures] have been able to come in better than expected despite the slow rate of economic growth," Oliver said.

"So while weak wages growth is a dampener on its own for consumer spending, it's partly offset by solid jobs growth."

Oliver said the resulting weak inflationary pressures from the labour market will reinforce Australia's central bank's easing bias.

Markets are currently pricing little chance of a cut to Australia's record low 2.0 percent cash rate at the next meeting in December following the release of the Reserve Bank of Australia's November board meeting minutes on Tuesday.

Evens said the market's 50-50 pricing on a move by mid 2016 is more realistic given the risks remain to the downside. Endit