Across the board, the Australian economy ended 2017 on a reasonably strong note. The economy did grow by 2.5% last year. This is, however, lower than the expected 3.25% growth predicted by the RBA.
Analysts are optimistic but cautious when it comes to the economy in 2018. Our international partners, like the U.S. and China, are maintaining strong economies, though their own growth is sluggish. For its part, Australia is poised to enjoy growth in multiple sectors, although there are areas of improvement that need to be addressed.
Rising CapEx and Millenials
Corporate capital expenditure or CapEx is set to increase in 2018. With the effects of the 2009 financial crisis finally decreasing, corporations are enjoying higher profits and renewed business confidence, to the point that analysts are forecasting an increase in their expenditures. These expenses are expected to boost economic growth.
But how do millennials factor into CapEx? As one of the largest generations in history, the world’s millennials are approaching an age where they are becoming major consumers. Because of this, millennial trends such as sustainability, clean energy and impact investing are becoming areas of key interest for corporations. Spending in these sectors is expected to rise, especially for companies who want to keep up with a new and growing customer base.
Weak Household Consumption but Strong Government Expenditure
The current expectation for household consumption remains uncertain, due largely to weak wage growth of the past year and high consumer debt. Experts are also citing rapid technological changes negatively affecting productivity growth in various sectors, which limits wage and productivity growth.
However, forecasts put wage growth at 2.5% for 2018. This means that, if the prediction is accurate, an uptick in household consumption could be seen as the year progresses.
This is in contrast to the forecast of strong Government expenditure. With CapEx boosting economic growth in multiple sectors, the Australian government has the necessary capital to reinvest in key infrastructure projects. This will ideally accelerate employment growth further, curbing unemployment rates and boosting consumer spending power.
Worldwide Trend in Business Investments
With our international trading partners going through steady, albeit sluggish, growth in their own economies, Australia is set to enjoy the recent upturn in global trade. Coupled with an increase in mergers and acquisition activity, business confidence is robust.
As one of our leading partners in trade, China has been able to ride the momentum of last year’s economic boom through accommodative monetary and fiscal policies. The United States is expected to have a more expansionary fiscal policy, despite the recent tax reform in their country.
The increase in mergers and acquisitions in Australia has seen companies try to consolidate their markets and customer bases, leading to general corporate growth. This consolidation of different industries under umbrella corporations has been instrumental in innovating new and/or disruptive technologies, which in turn has contributed to corporate growth and business confidence.
These mergers and acquisitions are predicted to continue in 2018, with analysts hoping that this will lead to bigger investments as business confidence remains high.
All these factors, of course, remain predictions. A string of internal and external factors can definitely skew the outcome of forecasts. However, if political climes in our trade partners remain stable, and if global confidence in business investments remains high, Australia could be poised to ride the economic upswing of 2018.