You are using an older browser version. Please use a supported version for the best MSN experience.

Economists find reasons to be upbeat

AAP logoAAP 12/08/2016 Garry Shilson-Josling, Economist

Economists have adopted a cautiously upbeat tone about the Australian economy, but the potential for Donald Trump to win the US presidential election is not being greeted with enthusiasm.

National Australia Bank economist Tom Taylor sees problems ahead if proposed Trump tax cuts are implemented.

"While Mr Trump's proposed reductions in corporate taxes involve plenty of dollars, the really big sums should come with his proposed cuts in personal taxes," he said.

The US government's debt was already historically high and is already projected to go higher even before tax cuts.

"The problem is that the US government is already highly indebted by historical standards and the situation is expected to just get worse, even without adding in anyone's proposed tax cuts," Mr Taylor said.

Tom Kenny and Brian Martin at ANZ homed in on Mr Trump's controversial attitude to key planks in his platform - trade and immigration.

"It is hard not to conclude that a Trump Presidency would be a threat to globalisation and free trade," they said.

And they warned that the economic effect in the US may not be positive.

"Trump's tax cuts are likely to be funded via larger budget deficits and thus add to already high government debt levels," Kenny and Martin said.

"If this is the case, both previous experience and theory suggest there would be minimal benefits to long-term growth. On the contrary, it could be harmful."

And they warned that Mr Trump's policies could undermine the credit rating of the US government.

On a more positive note, UBS economists Scott Haslem, George Tharenou, and Jim Xu, said they were lifting their forecasts for Australia's economic growth.

"Key to the outlook is that while private demand lifts steadily from here, it's a long-awaited pick-up in public capex (capital expenditure) that sees domestic growth double to two per cent year-on-year by end-17, the new trend by our figuring (half its historic pace)," they said.

They lifted their forecasts for growth in gross domestic product (GDP) by a slim 0.1 to 2.9 per cent for 2016, but by a heftier 0.3 to 3.0 per cent for 2017.

Also looking on the bright side, HSBC economists Paul Bloxham and Daniel Smith were keen to report progress with what they called "Australia's great rebalancing act".

"The main premise has been that, as the mining boom ended, lower interest rates and the lower AUD would support a pick-up in growth in housing construction and services exports, while the ramp-up in commodity export volumes would also support growth," they said.

The fall in mining investment would bottom out in mid-2017, while commodity prices may have already troughed.

But that's only part of the story.

"The big remaining question is when does non-mining business investment pick up?" Bloxham and Smith said.

They found the absence of this expected pickup surprising.

"Thankfully, there are some tentative signs that non-mining business investment could begin to pick up soon," they said.

image beaconimage beaconimage beacon