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Economy to remain soft for another three years

Economic forecaster BIS Shrapnel predicts the Australian economy will remain sluggish for a few more years before recovering as the exchange rate falls.

BIS Shrapnel’s Long Term Forecasts 2015-2030 report noted that the Australian economy is going through a difficult period in the aftermath of the mining boom – and the tough times are set to continue.

The company warns the economy will stay soft until it absorbs the shock of a substantial fall in mining investment, a fall that has only just begun.

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However, the report also found that the soft period will last just three years before rebounding to a solid five-year GDP growth average – led by a fall in the exchange rate which in turn will result in the structural change required to return Australia to competitiveness.

“The next three years will be tough for parts of the economy as the country makes the structural shifts required,” BIS Shrapnel associate director of economics Richard Robinson said, “and a return to competitiveness will not be uniform across the country.

“On the bright side, the recovery in dwellings investment is now well entrenched."

Mr Robinson noted that this upswing was delayed due to weak housing market sentiment and excessive caution on the part of investors.

However, with the expectation of low interest rates for an extended period, and a growing deficiency in stock, a solid increase in dwellings building is now well under way and will build momentum from here onward, he said.

The report forecasts another 18 months of strong residential building, along with improved alterations and additions activity, before the current dwelling investment cycle runs out of puff.

“But this upswing will not be uniform between regions, with sizeable stock deficiencies set to drive the markets – in particular, in parts of Queensland and New South Wales,” it said.

Economy to remain soft for another three years
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