Country Forecast Australia January 2018 Updater

Country Forecast Australia January 2018 Updater

  • January 2018 •
  • Report ID: 360948 •
  • Format: PDF


  • The next general election is due by November 2019, but an early poll cannot be ruled out. The ruling Liberal-National coalition's weak parliamentary position and internal divisions increase the likelihood that the prime minister, Malcolm Turnbull, could be forced to go to the electorate before his term has ended. The Economist Intelligence Unit expects the coalition to lose power to the main opposition Labor Party at the next election, regardless of when it is held.
  • Successive governments will remain generally open to foreign investment. However, stricter limits on foreign investment in new and existing residential housing and agricultural land, and by foreign state-owned enterprises, will make overseas investors more cautious.
  • We expect the government to miss its goal of a return to budget surplus in fiscal year 2020/21 (July-June), as a generally subdued global economic environment will weigh on revenue growth. We forecast that the fiscal deficit will average the equivalent of 1.1% of GDP in 2018-22.
  • Despite weaker demand from China in 2018 and a subdued household sector, the Reserve Bank of Australia (RBA, the central bank) will refrain from cutting policy interest rates in 2018-19 amid concerns about a resurgence in property price inflation and higher imported inflation as the local currency weakens. Rates will begin to rise from 2020 as domestic demand strengthens.
  • We forecast that real GDP will continue to expand at a respectable rate in 2018-22, at 2.4% a year on average. Export growth will ease in line with the weaker economic performance in China, Australia's main export market. However, an expanding population will provide support to domestic demand growth.
  • At an average of 2.4% per year in 2018-22, consumer price inflation will remain comfortably within the RBA's 2-3% target range. A weakening in the Australian dollar against its US counterpart will push up import prices in 2018-19, while improving domestic demand conditions will be the main source of price pressure in the later years of the forecast period.
  • Renewed weakness in prices for Australia's industrial commodity exports, combined with a persistent primary income deficit, will ensure that the current account remains in the red. We expect the current-account deficit to average the equivalent of 2.4% of GDP in 2018-22.






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