Stuck In The 'Terrible Twos'

A recession seems unlikely but the economy is failing to fire

- David Bassanese

The economy has continued to muddle along reasonably well over the past year and tentative signs are emerging that the pace of growth could quicken a notch in the year ahead. If so, it would help bolster corporate earnings and sharemarket performance, though it would raise the risk of the Reserve Bank of Australia seriously contemplating an interest rate increase by early 2019.

Despite very solid population and employment growth, weak productivity has left the economy stuck in the “terrible twos” growth path for some time – enough to avoid recession but not enough to make serious inroads into the rate of unemployment or lift wage growth.

Dragging down the economy have been steep falls in mining investment following the end of the commodity price boom some years ago and, so far at least, little pick-up in non-mining investment to help take up the slack. Consumer spending has also been relatively subdued, reflecting weakness in income growth and desire to pay down high debt levels.