The Australian economy slowed in 2019 to its slowest pace in 10 years as private spending growth collapsed. The Reserve Bank of Australia (RBA) sees the economy being at a “gentle turning point” before a re-acceleration in 2020.
“We are sceptical of the RBA’s optimistic forecasts and see Australian GDP growth remaining constrained around 2 per cent over 2020-2021, well below Australia’s potential growth of around 2.75 per cent, which means that spare capacity will remain a problem, keeping inflation and wages growth low,” Ms Mousina said.
Consumer spending is a vital component to the growth outlook, accounting for 60 per cent of GDP. Household spending is growing at just over 1 per cent annually, its lowest rate of growth since early 2009, and AMP Capital expects growth will remain low in 2020-21.
Meanwhile, business investment declined in 2019 but the outlook for business investment is mixed, Ms Mousina said.
“Mining investment is rising again after declining for the past six years. However, mining is now only 2 per cent of GDP whereas at its peak it was 7 per cent of GDP, so rising mining investment will not add as much to growth as it did at its peak,” she said.
“Non-mining business investment has been tracking at around 4.5 per cent of GDP for the past eight years and the forward-looking capex survey indicates that non-mining business investment is likely to be flat or fall slightly over 2019-20.”
While the Australian economy weakened over 2019, attractive valuations against falling bond yields, OK earnings growth and expectations of interest rate cuts lifted sharemarkets to a record high.
“Despite our subdued outlook on the Australian economy in 2020, these same factors are still in place to varying [degrees] and along with an improving global growth environment are expected to lift Australian shares over the next year,” Ms Mousina said.
However, she noted that performance is unlikely to be as strong in 2020 as in 2019.
