FEDERAL BUDGET 2018: Underlying economic forecasts

Stefan Postles/Getty ImagesTreasurer Scott Morrison
  • Real GDP is forecast to grow by 2.75% in 2017-18
  • Higher wages, inflation and better terms of trade will contribute to a rise in economic growth.
  • However, there are key uncertainties around the strength of the pick up in non mining business investment and the degree of spare capacity in the labour market.

The 2018 federal budget uses a series of assumptions of fundamental economic indicators to do its forecasts.

Among them, real GDP is forecast to grow by 2.75% this current financial year and to accelerate to 3% in 2018–19 and 2019–20.

The budget papers say higher wages, inflation and better terms of trade will contribute to a rise in economic growth over coming years.

However, there are some risks.

“Domestically, there are key uncertainties around the strength of the pick up in non mining business investment and the degree of spare capacity in the labour market,” according to the economic outlook in the budget papers.

“There are also risks around future household consumption and saving behaviour. All that said, these risks are very hard to quantify and both the Australian and world economies have shown remarkable resilience in recent years.”

Here are the major economic parameters used in the 2018 budget:

The economic outlook says momentum in the Australian economy strengthened in the second half of 2017.

“The transition from the investment phase of the mining boom towards broader-based growth is set to be completed by the end of the forecast period,” says the economic outlook.

“Growth is forecast to pick up to a pace sufficient to lower the unemployment rate over the next few years.

“The Australian economy is being supported by a positive global outlook. Global growth exceeded expectations in 2017, rising to its fastest pace in six years.

“Domestically, conditions remain favourable with consumer and business surveys at above-average levels.

“Solid contributions from consumption and non-mining business investment should underpin a pick-up in growth, as the drag from the unwinding of the mining investment boom recedes. Mining exports are also forecast to grow solidly.”

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