Assistant Treasurer Arthur Sinodinos is confident about the economic outlook even as data points to sub-trend growth and a reluctance to take on staff.
Australian economic growth appears to be entrenched in a sub-trend pace, with employers still hesitant about taking on new staff.
But Assistant Treasurer Arthur Sinodinos is confident Australia will remain a “bright spot” among advanced economies.
He told a conference of chief executives in Sydney on Wednesday that Australia was well placed with some of the emerging markets that would be dominant contributors to global growth.
“Indeed, over the next five years, Australia’s real GDP growth is expected to outperform that of every major advanced economy outside the US,” the senator said in a speech outlining Australia’s G20 presidency.
But he concedes the economy’s transition from resources investment to growth driven from the non-mining sector remains slow.
As such, growth will likely be below trend – usually considered about 3.25 per cent – for the next two years, while unemployment is expected to rise to 6.25 per cent by mid-2015.
“With these challenges looming large, the G20’s focus on jobs and growth could not be more relevant,” Senator Sinodinos said.
Data on Wednesday confirms economic growth is likely to remain below trend in 2014.
The Westpac-Melbourne Institute leading index of economic activity, which indicates the likely pace three to nine months into the future, moderated further in December.
Westpac chief economist Bill Evans expects that with growth prospects remaining challenged, an interest rate cut by the Reserve Bank (RBA) in August is still likely.
The RBA holds its first board meeting of the year on Tuesday.
“The recent upward surprise on inflation precludes any further rate cuts for some months until the bank is able to assess whether there has been a sustained upswing in inflation,” Mr Evans said.
But he suspects the sharp depreciation in the Australian dollar in 2013 is mainly responsible for the jump in inflation.
With the exchange rate stabilising in early 2014, more benign inflation outcomes could be delivered.
Demand for workers through job advertisements on the internet fell by a seasonally adjusted 1.2 per cent in December after trending higher for the previous two months.
However, there are growing signs of an improvement in business confidence.
Roger Mendelson, the chief executive of debt recovery firm Prushka, said lower interest rates, a change of government and better-performing international economies led to a boost in sentiment.
Many small and medium-sized enterprises (SMEs) believe they have “turned the corner”, having been in “survival mode” in the past 18 months.
A separate report, by software provider MYOB, found New Zealand SMEs were even more enthusiastic about the outlook as their country looks set to enjoy one of its most significant periods of growth in recent history.
“It may be time for local businesses to include our closest country across the ditch when considering new opportunities,” MYOB chief executive Tim Reed said.