Statement 1 (continued)
The Australian economy is in the midst of a major transformation, moving from growth led by investment in resources projects to broader‑based drivers of activity in non‑resources sectors. This is occurring at a time when the economy has generally been growing below its trend rate and the unemployment rate has been rising.
Since MYEFO, the near‑term outlook for the household sector has improved. Leading indicators of dwelling investment are consistent with rising activity, while household consumption and retail trade outcomes have improved recently, consistent with gains in household wealth. This is partly offset by weaker business investment intentions, particularly for non‑resources sectors.
The outlook for the resources sector is largely unchanged from MYEFO. Resources investment is still expected to detract significantly from growth through until at least 2015‑16, as reflected in the outlook for investment in engineering construction which is forecast to decline by 13 per cent in 2014‑15 and 20½ per cent in 2015‑16. Rising resources exports are expected to only partially offset the impact on growth. Overall, real GDP is forecast to continue growing below trend at 2½ per cent in 2014‑15, before accelerating to near‑trend growth of 3 per cent in 2015‑16.
Nominal GDP growth is forecast to remain weak, growing by 3 per cent in 2014‑15 and 4¾ per cent in 2015‑16. The weakness of nominal GDP growth reflects the sharp fall in prices for Australia's key commodity exports since the start of the year and a further expected decline in Australia's terms of trade. Subdued domestic price growth, in the absence of wage pressures, is also weighing on nominal GDP growth.
The Australian economy is also facing considerable challenges over the medium‑ to‑ longer‑term. The decline in Australia's terms of trade will likely extend beyond the forecast period, while the rising proportion of older Australians will lead to lower labour force participation, further constraining per capita income growth. Confronting these challenges will require faster productivity growth.
This Budget will support stronger and more sustainable economic growth in the medium term and does not place further pressure on the economy's transition to broader‑based growth in the near term. Government expenditure is being redirected to more productive uses, such as expanding infrastructure investment, and the Government is introducing measures to encourage greater workforce participation. By getting government finances under control and laying out a credible plan for fiscal repair, the Government is providing businesses and households with the certainty they need to invest in their future. This Budget will also help to keep interest rates lower over time by reducing the public sector's call on resources, while rebuilding the Government's flexibility to respond to adverse shocks in the context of a volatile global economy.
The outlook for the global economy has improved gradually since the end of 2013, led by a pickup in activity in advanced economies, most notably the United States. While activity has moderated in emerging market economies, these economies are still expected to contribute nearly three quarters of global growth over the forecast period.
There are both upside and downside risks to the economic outlook. Most notably, non‑resources business investment could pick up earlier and more rapidly than expected following a prolonged period of caution, while some trade‑exposed sectors would benefit from a lower exchange rate, which is historically an outcome associated with a fall in the terms of trade. Conversely, the fall in resources investment is likely to be lumpy, while the associated rise in exports also has uncertain timing. International risks are more balanced than previously, although still to the downside as economies continue to deal with legacy issues from the financial crisis.
|Real GDP||2.6||2 3/4||2 1/2||3||3 1/2||3 1/2|
|Employment||1.2||3/4||1 1/2||1 1/2||2 1/4||2|
|Unemployment rate||5.6||6||6 1/4||6 1/4||6||5 3/4|
|Consumer price index||2.4||3 1/4||2 1/4||2 1/2||2 1/2||2 1/2|
|Wage price index||2.9||2 3/4||3||3||2 3/4||3|
|Nominal GDP||2.5||4||3||4 3/4||5||5|
(a) Year average unless otherwise stated. In 2013‑14, 2014‑15 and 2015‑16 employment, wages and the consumer price index are through the year growth to the June quarter and the unemployment rate is the rate for the June quarter.
Source: ABS cat. no. 5206.0, 6202.0, 6345.0, 6401.0 and Treasury.