The Reserve Bank expects wages growth will gradually lift as employment continues to grow

Colin Brinsden, AAP Economics Correspondent
(Australian Associated Press)

 

The chief economist at one of the big four banks warns troubled consumers will hamper economic growth heading into 2018.

Constraints on growth are likely to centre on consumers struggling under the weight of weak wages growth, high energy prices and excessive debt, says Westpac’s Bill Evans.

“Conditions in housing markets, particularly in the eastern states, are likely to soften while the residential construction boom will turn down.”

Mr Evans was responding to the latest Westpac-Melbourne Institute leading index, which indicates the likely pace of economic activity three to nine months into the future. It pointed to only modest growth.

“While the index only gives us a glimpse of the likely momentum in the first few months of 2018 it is consistent with our view of the likely growth environment next year,” he said.

Mr Evans is forecasting growth of 2.5 per cent against Australia’s long-term growth rate that’s closer to three per cent.

Opposition employment spokesman Brendan O’Connor agrees there is a connection between downward pressure on wages and the effect on aggregate demand.

Wage growth is at its lowest rate in at least 20 years.

“If you don’t allow wages to grow, at least to CPI, preferably beyond, you will have consumer confidence down, people not purchasing,” he told the National Press Club in Canberra.

“People, therefore, will have an effect on business confidence.”

The Reserve Bank expects wages growth will gradually lift as employment continues to grow.

The minutes of the central bank’s October 3 board meeting showed it is confident of above-average employment growth over the remainder of 2017 based on job advertisements, vacancies and hiring intentions data.

September jobs figures are due on Thursday.

Economists’ forecasts centre on a 15,000 employment increase when the September labour force report is released on Thursday following a large 54,200 jump in August.

The jobless rate is expected to remain at 5.6 per cent for the fourth month in a row.

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