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Economic growth is projected to increase gradually and reach almost 3% by 2018. The drag on growth from declining resource-sector investment will fade and gathering momentum outside the resource sector will support wage and employment growth, thus boosting consumer spending. Tightening labour and product markets will bring inflation up from current low levels.
The central bank is projected to start increasing its policy rate towards the end of 2017, as growth improves and consumer price inflation moves towards its 2-3% target band. Higher interest rates will relieve some of the pressure on the booming housing market, although the risks posed by possible overheating still call for enhanced macro-prudential policies. In the event of an unexpected downturn, fiscal policy should be used to support activity. Given the good fiscal position, projects with high rates of return should be pursued.
Australia is distant from major world markets but is nevertheless well integrated into global markets. Sound policies have helped. In particular, Australia’s immigration and visa systems have been critical to demographic and economic development. However, there is room for a more business-friendly tax mix. Also, inequality needs to be contained, including that linked to globalisation, in particular through enhancing labour-market skills and providing better paths for disadvantaged people to get jobs.
Economic Survey of Australia (survey page)