'Heaps of stimulus' in economy: Deloitte

'Heaps of stimulus' in economy: Deloitte


Farm Online News
It looks like Treasurer Josh Frydenberg's tax cuts are bearing fruit for the national economy.

It looks like Treasurer Josh Frydenberg's tax cuts are bearing fruit for the national economy.

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Australia's economic slowdown appears to be well contained.

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Australia's economic slowdown appears to be well contained due to "heaps of stimulus" from recent tax cuts and lower interest rates.

In its latest Business Outlook released on Monday, leading forecaster Deloitte Access Economics says other factors helping the economy include lower bank funding costs and a modestly lower Australian dollar.

The Morrison government's election win has also helped to reduce policy uncertainty.

Deloitte says despite a global slowdown, China has helped the local economy through a surge in demand for Australian coal and iron ore.

"This is the first ever global slowdown in which the world has actually given Australia a pay rise instead of a pay cut," the firm's partner Chris Richardson says.

National income growth is right on its longer term average, he added.

But inflation and wage growth may "continue to disappoint", as unemployment isn't able to lower enough to help the two.

The Reserve Bank of Australia believes unemployment - currently at 5.2 per cent - needs to be a little under 4.5 per cent before "wages start to party", Deloitte says.

"But to get unemployment down to 4.5 per cent it needs to create an extra 200,000 jobs - which is hard, and that's why it is asking the federal government to help," Mr Richardson says.

Deloitte, therefore, predicts the cash rate to soon lower to 0.75 per cent or 0.5 per cent, with Australia to follow the global trend of having very low rates for some time.

Mr Richardson also notes the RBA's two recent interest rate cuts happened because the economy was not only slower, it was slower than it needed to be.

Weakness in wages is predicted to last longer than the stimulus from China, but the states are helping by keeping up infrastructure spending.

Deloitte predicts this combination will see the budget have a relatively brief brush with surplus before easing back into modest deficit.

Although it means Australia will benefit from long-term infrastructure, the spending doesn't "leave much of a rainy day fund".

"And the Reserve Bank is busily eating into its own rainy day fund," the report says.

"So let's hope it doesn't rain - policymakers haven't left much wriggle room if it does."

Shadow treasurer Jim Chalmers says the government won't admit there's a problem with the economy, which has reduced consumer confidence.

"The RBA has been forced to pick up the slack where it can, because the government has vacated the field when it comes to economic growth," he said in a statement.

"This third-term government needs to take responsibility for the floundering economy on its watch, which is defined by weak consumption, feeble growth and stagnant wages."

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Australian Associated Press

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