Vanguard backs Aussie GDP growth

Vanguard backs Aussie GDP growth

The Australian economy will grow between two and three per cent throughout 2015 as it transitions from mining-led to broad-based growth, says Vanguard.


In its 2015 Economic and Investment Outlook, Vanguard found that Australia’s low interest rate environment will continue to support the economy in 2015.

“Low rates have helped reduce the burden of debt on households, and encouraged a lift in equity and property prices. This has fostered a new housing construction boom which will provide jobs and boost the sale of consumer durables,” Vanguard said.

However, the decline in mining investment since 2013 and falling commodity prices have seen the industry subtract from economic growth.

“The mining sector has shed jobs as well as the public sector, and these have only been partially replaced by jobs in education, health care and other service industries,” said Vanguard.

Vanguard notes concern over rising unemployment rates – hovering in the 6.0 per cent to 6.5 per cent range.

“Vanguard’s leading economic indicators suggest that the economy should add more jobs in 2015, particularly in the service sectors. This should be enough to stabilise the unemployment rate around its current levels.”  

Moreover, “structural reforms to rebalance the economy and unlock productivity gains will remain the focus in 2015,” said Vanguard.

China is expected to grow moderately at around six to seven per cent in the next two to three years due to “weak domestic demand and a sluggish housing sector,” said Vanguard.

“The prolonged downshift in China’s economic growth in recent years is due to a combination of cyclical, secular and structural factors.”

Vanguard also pointed out that China’s economic growth could fall to five per cent in 2020 if concerns over the contracting labour force, falling return on capital and moderating total factor productivity growth are not mitigated through structural reform.

"The challenge for China is to attempt, through structural reforms, to strategically alter the country’s growth model and lift long-term potential growth, while maintaining a relatively stable growth pace and containing financial risks," Vanguard said.

"The key for rebalancing is to ensure investment spending flows toward the most productive uses of capital avoiding misallocation and overinvestment in certain sectors," said the report.

 

Vanguard backs Aussie GDP growth
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