To successfully operate a business and grow profits, it is important to have a thorough understanding of the economic opportunities and, equally, threats. Market research provides decision makers with strategic, high quality, objective and comprehensive insights, ensuring long-term, sustainable growth for business.
The economic landscape offers great financial opportunities, as foreign investment fosters local growth on one hand and labour costs, exchange and interest rates and increase competitiveness on the other.
Global economic growth supports Australian economy
The Australian Economy has just completed its 26th year of continuous growth, setting an international record. Australia’s economic future looks promising, while growth has accelerated in around 75% of Australia’s major trading partners. Favourable conditions, such as low interest rates, a relatively weaker Australian Dollar and low unit labour costs, boost Australian competitiveness. This means that expanding manufacturing and service sectors ultimately support domestic financial markets.
Only US trade restrictions, tensions with North Korea and Iran, as well as rising global government debt could potentially cause growth disruptions.
Guaranteed Growth – commodity headwinds support economy growth
The acceleration in economic growth in 50% of countries worldwide (IMF) translates into increased infrastructure spending and consequently fuelling demand for more Australian commodities. This growing demand is strong enough to offset against a slowing Chinese demand, safeguarding the national economy.
A booming Indian population combined with urbanisation and the “Made in India” campaign seeks to grow India’s manufacturing base, fuelling the need for more infrastructure. Furthermore, China’s “One Belt One Road” initiative is estimated to be one of the largest infrastructure projects in history (TIME) while Trump’s US$1 trillion infrastructure program will significantly contribute to commodity demand and set an end to the downturn.
Additionally, LNG contract agreements has commenced multi-year infrastructure projects (0.5% of GDP) and Asian economic and demographic momentum is pushing Australian tourism and education demand upwards (0.5 – 0.75% of GDP), all looking to boost Australian economic growth.
Tightening labour markets and weak wages keep inflation under 2%
Possible growth in wages, as a result of a positive economic outlook, might bring inflation closer to the Reserve Bank of Australia’s (RBA) 2-3% target. However there still are very few upward pressures on wages or prices. The government’s focus on budget repairs makes tax cuts or welfare increases appear highly unlikely, meaning that an increase in household spending could only come from either wages growth or an increase in small to medium enterprise (SME) profits.
However, Australia is currently experiencing the lowest wages growth on record (only 2% p.a.), a reality of a highly competitive product and labour market.
RBA Governor Dr. Philipp Lowe expressed his hope for a “pickup in wages” and declared it would be “a good thing if workers asked for a pay rise”. Australia could miss the next wave of global economic growth if consumer spending does not increase.
Households – macroeconomic risk?
Weak income growth, decreasing consumer spending and high levels of household debt are posing a serious financial risk to the Australian economy.
It is not just the fact that the average household debt has increased, but more households have debt and carry it for longer. Increasing living costs combined with weak income growth and job security concerns are creating delicate environment sensitive to interest rate fluctuations. This evokes exaggerated consumer responses to economic news. However, it should be noted that unemployment, interest rates and mortgage rates are decreasing and the labour market is picking up. This means at least in the short-term, nothing will trigger any major financial risk factors. If companies recognise the booming economic headwinds in the future and offer their employees higher wages, consumer spending will increase and the Australian economy will once again prosper.
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Source: Euromonitor International