Real GDP growth is highly likely to slow over the coming years owing to a number of factors: slowing growth in the working age population; a high share of government spending relative to GDP; and a reversal in the country s terms of trade; and the growing risk of deflation. These impediments will result in real GDP growth averaging -.- over the next decade, down from -.- over the past decade. ...Total revenue collection will remain poor as the economy continues to weaken, which will weigh heavily on tax receipts. Meanwhile, objections to spending cuts from the public, opposition and crossbench senators as well as other state govern- ments indicate that the Australian government will struggle to keep its expenses and borrowing on a sustainable trajectory. While there is currently no danger of a fiscal crisis, our core view is that this growing burden of the government will undermine the productivity of the private sector and take its toll on economic growth over the medium term. ...While there is currently no danger of a fiscal crisis, our core view is that this growing burden of the government will undermine the productivity of the private sector and take its toll on economic growth over the medium term. We expect the Reserve Bank of Australia (RBA) to cut its cash rate by --bps to -.-- in ---- as overall economic growth deteriorates as the unwinding investment boom is compounded by a weakening housing market amid a subdued inflationary environment.
...Meanwhile, net exports contributed -.-pp to Q--- headline real GDP growth, which was also the major factor for the pick up in growth. This positive contribution is not surprising given that the Australian dollar has weaken significantly amid the reversal in the country s terms of trade. ...We do not expect a significant reversal in Australia s terms of trade anytime soon as our Com- modities team believe that prices of Australia s key commodities such as iron ore and coal will remain low due to an oversup- plied market. Therefore, lower export revenues suggests that purchasing overseas inputs will be increasingly difficult, and we expect a contraction in imports, particularly against a backdrop of contracting mining investment and the precarious nature of the real estate market. Contracting imports will be required to prevent a further deterioration in Australia s trade account, but at the same time, growth will be undermined. ...Therefore, lower export revenues suggests that purchasing overseas inputs will be increasingly difficult, and we expect a contraction in imports, particularly against a backdrop of contracting mining investment and the precarious nature of the real estate market. Contracting imports will be required to prevent a further deterioration in Australia s trade account, but at the same time, growth will be undermined.
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