CEDA 2016 outlook report: recession unlikely, but risks remain, confidence and capex needed

Releasing the annual EPO publication, CEDA Chief Executive Professor the Hon. Stephen Martin said while there are still policy levers that can be pulled if the Australian economy faces a recession, as highlighted in theEPO economic chapter, income weakness remains a risk that should not be ignored.

“Falling commodity prices will impact how income weakness plays out but equally the rising Asian middle-class offers new opportunities for our non-resource sectors,” Professor Martin said.

“Capital expenditure in non-mining sectors will also be vital for the Australian economy in 2016. As forecast in the EPO the fall in mining construction since 2012 is about 70 per cent of the way down the cliff.

“While residential construction has helped to stimulate jobs to replace those lost from the mining sector, businesses have been reluctant to invest and governments are facing a continuing difficult budget environment.

“Business confidence is going to be a significant issue and is a key area explored in this year’s EPO. Currently business confidence is probably lower than the reality of Australia’s economic situation but it is unlikely to improve with the politicking of an election year. 

“This has the potential to have serious implications for the economy.

“CEDA’s EPO predicts the Turnbull Government will be re-elected, albeit with a reduced majority. However, business confidence in the current government, of which there were high expectations, appears to be wavering.

“The Prime Minister’s focus on Australia being agile and innovative has been the right messaging but it is failing to translate into positive action.

“Unfortunately internal party turmoil along with a difficult Senate and looming election will make it difficult for the Government to have the depth of debate needed around key issues on structural economic reform, as highlighted by the PM ruling out a GST increase this week.

“Low business confidence means we won’t get the investment needed to drive new jobs in non-resources sectors. In addition this could be coupled with 2016 economic wildcards, highlighted in the EPO, including the US election, UK Brexit debate about leaving the EU and the appointment of a new RBA Governor.”

Professor Martin said the Australian economy is entering a period unlike anything we have seen in more than 20 years and there are significant global risks for our economy.

“That’s why a focus on recognising opportunities such as increasing demand for education, tourism and health services from Asia and on growth enhancing reforms such as real tax reform will be vital in 2016,” he said.

“The focus this year should be on policies that deliver commercialised innovation and a workforce with the skills for next generation jobs. As the EPO highlights, government policy must support productivity growth by encouraging business to invest in new technologies and physical and human capital.”

In addition to the economic and political forecasts this year’s publication also looks international and domestic competitiveness.

CEDA 2016 EPO contributing authors are:

• Economic outlook – Michael Blythe, Chief Economist and Managing Director Economics, Commonwealth Bank of Australia.
• Political outlook – Dr Peter van Onselen, Winthrop Professor of Journalism, University of Western Australia; contributing editor The Australian; presenter Sky News.
• Positives aplenty: Australian business competing overseas – Leanne Cutts, President, Gum, Candy and Powdered Beverages and Marketing Services Asia Pacific, Mondelez International; and Amanda Banfield, Managing Director, Mondelez International Australia and New Zealand.
• Challenging times for Australia – Sam Churchill, Head of Macro Research, Magellan Financial Group.
• Achieving stronger growth – Lisa Gropp, Chief Economist, Business Council of Australia.

The EPO is being launched in Brisbane today with speakers including Michael Blythe, Chief Economist and Managing Director Economics, Commonwealth Bank of Australia; Mark Textor, Managing Director, Crosby | Textor; Julie Toth, Chief Economist, AiGroup; John O’Sullivan, Chairman, Australian Investment Banking, Credit Suisse; Warren Tease, Principal Advisor Macroeconomic Conditions Division, Federal Treasury; Gary Edstein, Senior Vice President, DHL Express Oceania.

The EPO publication can be accessed and downloaded here.

The launch event will be followed by a series of events being held in Adelaide, Canberra, Hobart, Townsville, Melbourne, Perth, Sydney and Darwin in February and March.

Professor Martin is available for further comment and interviews.

Read Professor Martin's EPO opinion piece: Outlook highlights risks, a dash of politics doesn’t help