The Morrison Government’s election win is also predicted to improve business and consumer confidence after both measures dropped due to uncertainty about the May 18 result.
In its latest business outlook released on Monday, leading forecaster Deloitte Access Economics says other factors helping the economy include lower bank funding costs and a modestly lower Australian dollar.
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“The drought and the downturn in housing prices are hurting the Australian economy, but the global slowdown has — so far — been good news for Oz,” Deloitte partner Chris Richardson says.
“This is the first ever global slowdown in which the world has actually given Australia a pay rise instead of a pay cut.”
National income growth is right on its longer term average, he added.
But inflation and wage growth may “continue to disappoint”, as unemployment isn’t able to lower enough to help the two.
Mr Richardson believes the Reserve Bank of Australia (RBA) has changed its model of where the unemployment rate needs to be before wages start to grow.
It needs to drop from 5.2 per cent to somewhere below 4.5 per cent before “wages start to party”.
“But to get unemployment down to 4.5 per cent it needs to create an extra 200,000 jobs — which is hard, and that’s why (the RBA) is asking the federal government to help,” Mr Richardson says.
Deloitte predicts the cash rate to soon lower to 0.75 per cent or 0.5 per cent, with Australia to follow the global trend of having very low rates for some time.
Mr Richardson also notes the RBA’s two recent interest rate cuts happened because the economy was not only slower, it was lower than it needed to be.
Weakness in wages is predicted to last longer than the demand for commodities from China, but the states are helping by keeping up infrastructure spending.
“There’s more stimulus already coming than people realise,” Mr Richardson says.
Deloitte predicts this combination will see the budget have a relatively brief brush with surplus before easing back into modest deficit.
Although it means Australia will benefit from long-term infrastructure, the spending doesn’t “leave much of a rainy-day fund”.
“And the Reserve Bank is busily eating into its own rainy day fund,” the report says.
“So let’s hope it doesn’t rain — policymakers haven’t left much wriggle room if it does.” Treasurer Josh Frydenberg on Sunday was upbeat about the economy and played down calls for more government stimulus.
But shadow treasurer Jim Chalmers says there is “troubling complacency” in government ranks over the real state of the economy, which is still struggling despite the good news Deloitte is predicting.
“The economy is growing at the slowest pace in 10 years. Wages are remarkably stagnant,” Dr Chalmers told Sky News.
“The economy has deteriorated even since the election.”