A HSBC global economics report said that in order for growth to improve, non-mining business investment and hiring will need to increase.
However, “on the upside, the recent pick-up in household demand could drive a stronger pick-up in non-mining business investment and hiring than expected,” HSBC said.
Moreover, the report found that recent budget measures “could be more supportive for growth than we currently anticipate”.
HSBC has revised its Australian GDP growth forecast to 2.4 per cent for 2015 and 3.0 per cent in 2016.
According to HSBC economists Paul Bloxham and Daniel Smith, the Reserve Bank of Australia (RBA) will need to provide further support for domestic demand by continuing its easing policy.
“The central bank has also continued to seek a lower AUD to help support the rebalancing of growth,” the report said.
“Although there has been no explicit intervention, the RBA has continued to comment publicly that a lower AUD is needed for growth to return to a balanced path.”
HSBC expects the RBA to keep its cash rate on hold for 2016 in order to encourage the Australian dollar to depreciate.
According to report authors, Mr Bloxham and Mr Smith, the risks to economic growth are “titled to the downside”.
However, risks are related to poor growth coming out of China and therefore dampening demand for Australian exports.
A continued lack of confidence in non-mining sectors resulting in weak business investment will also place strain on the economy.
HSBC pointed out that the over-inflation of property prices is a notable risk and may cause problems in coming years.
Finally, “there is a risk that the currency stays stubbornly high, relative to commodity prices, constraining the pace rebalancing," the report concluded.
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