Solid major trading partner growth and pending public infrastructure work will cushion the end of the most recent housing boom, while business investment is also poised to become a source of growth, Janus Henderson Investors has predicted.
Australian fixed interest team investment strategist Frank Uhlenbruch said public infrastructure work yet to be done was at about 6 per cent of nominal gross domestic product, while consumption was expected to grow moderately and net exports were set to benefit from further expansion in liquefied natural gas export capacity.
“Business investment is poised to become a source of growth as the drag from falls in mining investment finally ends,” Uhlenbruch said.
“Overall, we see economic growth lifting to around 3 per cent.”
The major positive surprise on the macro side was the robust rebound in the labour market after a dull period over 2016 and 2017, he said. Employment was up 3.1 per cent over the 12 months to September 2017, with full-time jobs growth accounting for most of the gain.
“Given the strength in jobs growth, some fall in the unemployment rate could have been expected over the year,” Uhlenbruch noted.
“Instead, the unemployment rate has largely tracked sideways as labour market strength enticed workers back into the labour force, resulting in a lift in the participation rate.”
He noted that at the end of 2017, historically low wages growth and higher underemployment levels suggested the labour market still had “some slack in it”.
The rebound in the labour market helped close the gap between better business conditions and subdued levels of consumer confidence, he said.
He said looking forward, the growth and inflation outlook could allow the Reserve Bank of Australia to begin winding back the level of monetary accommodation towards a more neutral stance, with expectations the next move in the cash rate would be up.