Economic growth steady despite trade tensions and China question

University of Adelaide economists predict that South Australia’s economic growth will broadly mirror Australia’s and the global economy’s continued good performance. But there are risks from the United States’ anti-trade measures and the possibility that China will falter.

In its latest Economic Briefing Report, the University’s South Australian Centre for Economic Studies (SACES) predicts that global economic growth will translate into growth in the Australian and South Australian economies for the rest of 2018 and into next year.

“South Australian business confidence is continuing to recover while public sector spending has been growing strongly. Accommodative monetary policy is still encouraging growth rather than hindering it,” says Associate Professor Michael O’Neil, Executive Director of SACES, the University of Adelaide. “Employment has grown strongly over the last year.”

“The most likely scenario is that global economic growth will continue quite solidly for the next couple of years, at least so long as China’s economy doesn’t slow down faster than expected.

“The most significant concerns in the SA economy are historically low rates of business investment and subdued wages growth, while nationally the high levels of household debt and inflated house prices also pose a risk.

“There are also risks in the international economy, including the threat of US protectionist measures escalating into trade wars and the risk that growth is choked off by the upward swing in global interest rates that is already in progress.

“The improvement in Australia’s economic conditions, that was noted by SACES in December 2017, has strengthened slightly, with Gross Domestic Product (GDP) growth edging up to 2.8 per cent in the year to the March quarter. This is a better performance than we had expected in December despite it still being slightly below the long term trend,” says Associate Professor O’Neil.

Investment – both by government and business – has continued to grow strongly for Australia as has government consumption spending. However, household spending growth is quite subdued. Growth in exports has been quite strong but has been more than offset by a surge in imports, which has adversely affected GDP.

Over the next couple of years, the South Australian economy is expected to continue to grow moderately. Slower population growth will prevent the state economy from expanding as fast as the national economy.

“Gross State Product for 2017/18 and 2018/19 will grow by 2 per cent, which is slightly lower than the 2.2 per cent growth that was recorded in 2016/17 under the influence of a bumper farm crop”, says Associate Professor O’Neil.

“The unemployment rate will remain steady at around 5.6 per cent over the next three years which is significantly lower than the 6.4 per cent level of 2016/17 and is only a little higher than the national rate.

“Improvements in the labour market have not yet translated into a boost in wages nor increased consumer spending. This has kept inflation under control but has also held back GDP growth and kept household debt at historically high levels.

“Despite questions over trade tensions and China’s economic performance, South Australia is set to benefit from improving national and global economic conditions,” says Associate Professor O’Neil.

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