Economic growth is projected to recover to 3% in 2017. Ongoing decline in resource-sector investment will be offset by strengthening consumption, non-resource sector investment and exports. Consumer price inflation will increase gradually as the economic upswing gathers momentum and the labor market starts tightening.
With prudential measures reducing downside risks from the housing boom, further monetary policy easing should be implemented in the event of a deepening downturn. The planned pace of fiscal consolidation is broadly appropriate but there is room for support if cyclical conditions deteriorate. Boosting productivity requires improved framework conditions, in particular through a further shift towards indirect taxes, and reforms that enhance inclusiveness, such as improved childcare provisions for working families.
Climate change could increase the extent and frequency of Australia’s droughts. The recently finalized Safeguard Mechanism will help to prevent the gains made through the Emissions Reduction Fund being offset by emissions increases elsewhere. The government has announced it will conduct a review in 2017-2018 to identify whether Australia’s climate policy settings will require adjustments in order to achieve the announced 2030 emission-reduction goal.