Govt counts on growth in household consumption to drive growth

(Australian Associated Press)


The federal government is optimistically counting on improving household consumption to help drive economic growth over the next four years.

Growth forecasts have only been revised lower in the current financial year, on account of unseasonal wet weather in the September quarter and Cyclone Debbie in March.

Treasurer Scott Morrison’s budget forecasts gross domestic product to rise 1.75 per cent in the financial year ending on June 30, before leaping 2.75 per cent in 2017/18 and rising to three per cent in 2018/19.

“The lift in economic growth is expected to occur as the drag from falling mining investment diminishes and as growth household consumption and non-mining business investment improves,” he said.

“Exports are also forecast to continue to grow, supporting greater economic activity and growth.”

The budget predictions sit on the conservative side of the Reserve Bank of Australia’s forecasts in the quarterly Statement of Monetary Policy, released last Friday.

While the GDP rebound next financial year is to be expected, it will be a lot tougher for the growth rate to rise above that level the following year.

That’s because one of the central pillars of growth – household consumption – has been looking rather shaky.

Recent consumer confidence surveys have shown sentiment falling and just hours before the budget was released on Tuesday, the Australian Bureau of Statistics reported that retail sales fell 0.1 per cent in March.

The RBA has additionally been warning for months that record high household debt could lead to consumption growth being significantly curtailed in the event of any economic shock.

Wage growth, a key influence on consumption spending, has also been sluggish for the last two years.

However, the government expects wage growth to rise from just two per cent in 2016-17 to 3.75 per cent by 2020/21.

And unemployment is forecast to fall from 5.75 per cent to 5.25 per cent in the same period.

In other words, the government believes wage growth will nearly almost double as the unemployment rate gradually falls.

Perhaps, that’s why the government has included a caveat to its forecast later in the budget papers.

“Domestically, there are risks around the momentum in household consumption as well as uncertainty around dwelling investment,” the budget said.


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