The expansion of the Australian economy is on track to reach its one hundredth quarter in 2016, says Pimco fixed income portfolio manager Adam Bowe – marking 25 years without a recession.
“It certainly has been a remarkable run, particularly when you consider that only three isolated quarters during that period have experienced a contraction in real GDP, and one of those was related to the 2011 Queensland floods,” Mr Bowe said.
But with the “macro headwinds” that Australia is facing and the consequent structural change, he added “we should be alert to the risk of recession”.
“When you are riding a bike very slowly, it is much easier to topple off.
“However, over the next six to 12 months, we see plenty of evidence that the economy will be rebalancing rather than recessing, and that continues to be our baseline forecast for 2016,” he said.
The “sluggish” growth and “rebalance” narrative is particularly evident in the labour market.
“Employment growth has accelerated during 2015 ‒ which clearly isn’t suggestive of a recession,” he said.
“However, looking into the details, we should not be expecting a significant acceleration of growth either.
“In the two years through the third quarter of 2015, healthcare and education were the industries experiencing the fastest employment growth, and workers in those sectors were earning average weekly wages of A$1,051.
“The mining and wholesale trade sectors have been suffering the worst contraction in employment over the same period, and those industries have been paying an average weekly wage of $1,750.
“So clearly the labour market is rebalancing, which is a good thing, and aggregate employment is growing. However, the structural shift into lower-paid jobs will continue to weigh on wages and through that, on household consumption, which remains the largest component of GDP,” Mr Bowe said.
