The Australian economy is set to expand by around 2.5 per cent to 2.75 per cent in 2017 and is well-placed for managing the end of the most recent housing boom, according to Janus Henderson Investors.
Rounding up the year, Janus Henderson Investors’ investment strategist in the Australian fixed interest team, Frank Uhlenbruch stressed that monetary policy setting in 2017 remained on track with the Reserve Bank of Australia (RBA) leaving the cash rate unchanged at 1.5 per cent.
Also, the main positive surprise on the macro side had been the strong rebound in the labour market after a lacklustre period over 2016 and early 2017.
However, going into the end of 2017, historically low rates of wages growth and elevated levels of underemployment suggested that the labour market had some slack in it.
As far as 2018 was concerned, Uhlenbruch said he expected that with solid major trading partner growth and with public infrastructure work yet to be done at around six per cent of nominal GDP, the Australian economy would be “reasonably well-placed to manage the end of the most recent housing boom”.
“Consumption is expected to grow at a moderate pace and net exports are set to benefit from further expansions in LNG export capacity,” he said.
“Business investment is poised to become a source of growth as the drag from falls in mining investments finally end.
“Overall, we see economic growth lifting to around three per cent.”
According to Janus Henderson Investors, the underlying inflation rate would gradually lift to two per cent by the end of 2018.
The new year would also see the Reserve Bank of Australia (RBA) increasing the pace of tightening.
“Given that many offshore economies had to ease monetary conditions by much more than Australia, the RBA has suggested that initial rises in offshore rates have no automatic implication for domestic settings,” Uhlenbruch said.
“We suspect that as we head towards the end of 2018, the growth and inflation outlook will allow the RBA to commence winding back the level of monetary accommodation towards a more neutral stance.”
According to FE Analytics, Janus Henderson Australian Fixed Interests Fund has delivered annualised returns of 3.93 per cent over the last three years to October 31, 2017.
