Growth and investment forecast to lift
This time last year Australia's leading business economists said economic growth would slide, investment would hit the wall, and the government would deliver a deficit rather than its forecast surplus.
The Australian Business Economists' executive committee was right. The committee includes forecasters from Macquarie, Barclays, UBS, Deutsche Bank, JPMorgan and banks Westpac, Commonwealth, NAB and ANZ.
This year it is opting for reacceleration of economic growth, accelerating housing investment and growing export volumes (offset by further sharp falls in export prices).
The survey released at Thursday's forecasting conference has interest rates remaining on hold and the dollar slipping to US88¢.
The Australian economy grew just 2.6 per cent in the year to June, down from 3.7 per cent a year earlier.
The forecasters expect growth of 2.9 per cent throughout 2014 and 3 per cent throughout 2015. They expect China's economy to grow by 7 to 7.2 per cent.
Business investment grew at an annual rate of 15.4 per cent in 2012. The panel believes it grew not at all during 2013 and now expects it to slip 3.7 per cent in 2014 and 2.5 per cent in 2015.
But it expects dwelling investment to surge. After climbing 4 per cent this year, it should climb 5.7 per cent in 2014 and 4.8 per cent in 2015. Low interest rates, robust population growth and a robust demand for housing are the likely drivers.
It also expects household spending to pick up, climbing from an estimated rate of 2.1 per cent in 2013 to 2.7 per cent and then 3.1 per cent. "Consumers are still shackled by prudence, although in recent months there have been some encouraging signs of a loosening of these shackles," the committee says.
Export volumes are set to climb a further 6.6 per cent and then 7.1 per cent, while Australia's terms of trade fall further, sliding another 4.4 per cent in each of 2014 and 2015.
"These falls mean the economy will experience a net transfer to the rest of the world," said ABE chairman Stephen Halmarick of Colonial First State.
The forecasts have inflation remaining steady at about 2.5 per cent, along with the Reserve Bank cash rate, also steady at 2.5 per cent for an unusual two years before climbing to 4.25 per cent by 2018.
The Australian dollar would finish this year at US95¢, before slipping to US88¢ in 2014. The ASX 200 would climb 5.6 per cent through 2014, closing at 5571.
The committee does not expect a return to budget surplus until 2017-18. "Steps in the right direction" it identifies include raising the GST rate and widening its base, more tightly targeting welfare payments and "reviewing the appropriateness of large industry assistance packages to the private sector".