By guest contributor Jonathan Baird, Investment Specialist, Western Asset Management
When it comes to economic growth, Australia remains the outlier in the developed world, in that we have stopped quoting the economic expansion by number of months and moved to years. There have been many global shocks along the way that could have tripped the economy up. However, good management, good luck and our close proximity to China have enabled Australia to enter its 28th consecutive year of expansion.
That said, growth is currently below the long-run average and persistently-low inflation reinforces our view that Australia is going to stay a member of the ‘low-wage party” for longer than most. This environment combined with a softening housing market, is likely to keep Dr Lowe and the other members of the Reserve Bank of Australia (RBA) Board sitting comfortably on their hands for a while longer.
Australia’s labour market, whilst unspectacular, remains robust – the unemployment rate has oscillated around 5.5% in recent months, although it is lower than this time last year. While there is still some slack in the economy as evidenced by persistent underemployment, the participation rate continues to creep up. Wage growth has been supported by the public sector, but we believe the below-trend growth rate will gradually impact the consumer and their ability to spend.