Garry Shilson-Josling, AAP Economist
(Australian Associated Press)
Wages barely keeping up with prices, stagnating unemployment, and a one-in-five chance of recession – that’s what we can expect over the coming couple of years according to a roll call of Australia’s leading economists.
A survey of the executive committee of the Australian Business Economists, coinciding with the group’s annual conference in Sydney on Tuesday, found economic growth is expected to pick up.
But not enough to set the jobs market on fire.
About half the committee thought the jobless rate had already peaked and would edge lower over 2016 and 2017, but the rest expected it to rise to around 6.5 per cent during 2016.
The median of the forecasts had unemployment ending 2016 at 6.2 per cent, compared with 5.9 per cent at last measure by the Australian Bureau of Statistics in October, before edging back to 5.8 per cent by the end of 2017.
The slack labour market means wages growth will stay in the doldrums.
The bureau’s labour price index is forecast to rise 2.5 per cent next year and 2.8 per cent in 2017.
With consumer prices forecast to rise by 2.5 per cent next year and 2.6 per cent in 2017, that means little on no real wages growth.
And there are risks even to that unadventurous outlook.
“The bulk of the Committee attached a probability of 20 per cent that Australia would enter recession in the next two years,” it said.
The risks were centred on China.
“A hard landing in China or an unruly devaluation in the Chinese yuan were the most frequently noted event risks,” the ABE committee said.
The Reserve Bank of Australia’s cash rate, with the median forecast of 2.0 per cent until the end of 2016, and 2.75 per cent by the end of 2017.
But forecasts for the cash rate at the end of 2017 range from 1.5 per cent to 3.0 per cent.
The survey also ventured beyond GDP and other economic benchmarks and into areas like income inequality, domestic violence and homelessness.
Economists zeroed in on the interaction of tax and inequality.
“On the need to tackle the drift to greater income and wealth inequality, the reform mentioned most often was the need for taxation reform,” the ABE said.
The right mix of tax and welfare policies was seen as a key to fair income distribution.
“Tackling home affordability was viewed as a key plank of reform need to address the rising gap between the rich and the poor.”
The removal of negative gearing on housing would be “a positive development”, the committee said.
The economists also called for greater support for people at risk of domestic violence and homelessness, topics that were “often mentioned”, along with inequality in women’s wages and the high cost of childcare.
The consensus was that “a coherent macro response” was need to address these issues.