Australia 2020: Gradual recovery supported by real estate, infra investment

January 21, 2020

HONG KONG - The Australian economy is expected to gradually improve show growth of 2.1% in 2020, up from +1.8% in 2019, according to n assessment by Natixis, which says that, iGIn addition to infrastructure investments by the Australian government, a slight improvement in the global economy should help put a floor under commodity prices.

"In addition, while business investment has remained weak on the back of softer business confidence, it is anticipated to gradually increase, supported by higher corporate profits through rising terms of trade, as the lingering global trade war recedes," the report says.

"Although higher profitability is also likely to improve the labour market, low productivity gains are anticipated to limit wage growth, which would in turn contain the recovery in private consumption."

Natixis says Ausdtralia' s housing market has also shown further signs of stabilisation. Residential investments have fallen because housing supply has caught up with the increasing population from 2006.

"In fact, housing values have increased for six consecutive months while the vacancy rate has remained contained at around 2.5%," the report says.

"Housing prices are anticipated to rise further on the back of an accommodative monetary policy, but the recovery is expected to be rather gradual given weak wage growth and tight Government regulation on foreign investments."

Nateixis says that, because inflation has remained below the 2-3% target range, the Reserve Bank of Australia is anticipated to lower the cash rate further, to support the labour market and the economic transition to the service sector, "which recently retreated".

"Furthermore, because the record high housing debt was largely financed by floating mortgage rates, a lower cash rate could support private consumption.

"With the Fed remaining on hold, according to our house view, the Australian dollar is expected to slightly depreciate in the short-term on the back of a larger interest rate differential with the RBA.

"However, as the global economy recovers from the second half of the year, the AUD is anticipated to gradually strengthen to 0.69 in December, supported by rising terms of trade and the current account surplus." (ATI).