BIS Shrapnel’s Chief Economist Frank Gelber today released his latest forecast for the Australian economy.
While he says Australia has a competitiveness gap that we can do little about, he believes the economy is “On the threshold of another structural shift – this time back towards balanced growth.”
Gelber says this gap “is far too big to eliminate by cost cutting, initiatives on manning practices or wage restraint,” and that the gap in unavoidable as the Australian dollar has made it much harder for the Australian economy — and businesses in it — to compete.
Gelber reckons there are two major shifts required to get the economy back to “sustainable balanced growth”:
The first is that the Australian dollar needs to fall to between 70 and 75 cents in current US dollar terms.
The second is that business investment, which is in the doldrums outside mining, needs to pick up.
BIS thinks it is going to take two years to get the dollar down to even 80 cents.
And in any case “the fall in the dollar will be too little, too late – causing further damage to the economy along the way. It will delay the structural change required to rebalance the economy post the resources investment boom.”
So based on the BIS outlook: the recent run of weaker data in the Australian economy, and the weak conditions seen in the NAB Business survey, look set to continue for a while yet.
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