The Economic View: 2017 in review

It was the best of times and the worst of times for economic data in 2017. I trust Charles Dickens won't mind a slight twist on his famous opening line to “A Tale of Two Cities”, as ‘growth' and ‘inflation' were clear standout pieces of economic data. They are also complete opposites.

Growth was a surprise this year; expectations had been for a decline in the annual growth rate, which looked to becoming true in the second quarter with a quarter-on-quarter decline.

However, what wasn't forecast was the China demand surprise – 2017 has bordered on a renaissance for bulk commodities as China's appetite for raw materials exploded mid-year. Net exports actually added points to GDP compared to the forecast deductions, while public spending held firm (and even increased) as the year wore on – a near enough to 3 per cent growth rate in the developed world is very solid.

The other part of the growth story at the back end of the year was private spending – having been lacklustre for the past two years, private spending actually expanded for the first time since 2012 in the third quarter. Business confidence and conditions improved considerably, adding optimism to business spending and further support to GDP.

The culmination of higher net exports, government and private spending more than offset the decline in consumption.

The other side of the year was the ever-elusive inflation kick that was expected to materialise and, as the year progressed – other impactors on inflation began to drag it even further into disinflation.

In particular, wages growth has now become a ‘core' input to inflation forecasts for economists and market strategists alike.

The emphasis on consumers – their declining disposable income and high levels of debt – has been a Reserve Bank concern for several years. The kicker now, however, is that wages are stagnating, with real wages growth just covering inflation.

This lack of traction in wages translated into consumption, setting inflation on a declining path towards disinflation in 2017, and left the RBA with no option but to back away from any form of interest rate rises.

This tale of two pieces of economic data of 2017 looks set to continue in 2018