Aussie economy uncertain and politics turbulent

Despite enjoying being recession-free for 27 years, many households are still struggling

For Australia, 2017 is ending on a surprisingly upbeat note. The economy showed signs of life, and Prime Minister Malcolm Turnbull, who enjoyed some recent good fortune, was shown dancing in a colourful striped shirt at a Christmas Day street party for the homeless. Adding to the joy, the national cricket team smashed its English archrival.

Still, the year ahead seems far less certain, and there are two main sources of concern.

First, Australia's recent startling run of economic success is marred by some worrying indicators that raise valid doubts about its longevity. Second, and in marked contrast, there seems little reason to hope that the country's recent sorry run of political turbulence and instability is showing any sign of finally ending.

Australia was credited this year with setting a world record as the nation with the longest period of uninterrupted modern growth. It is now in its 27th year without a recession and is growing at a healthy rate of 2.8 per cent.

But few in Australia seem to be celebrating - and for valid reasons.

Despite decades of prosperity, many households are struggling.

Power bills are soaring and Australian households are among the most indebted in the world after taking on hefty mortgages to pay for booming property prices.

STRONG GROWTH

But an economy with such strong and sustained growth in full-time jobs simply can't be seen as sickly. And precedent tells us that where employment goes, wages follow.

MR ROSS GITTINS, economics commentator for The Sydney Morning Herald, on the outlook for next year.

But less and less money is coming in. In a development that has stumped economists, Australia has low unemployment of about 5.4 per cent, but wages have been rising at their lowest rate for more than 20 years.

Some analysts were buoyed by the final figures, which showed a 2.8 per cent rise in total employment for the year to September.

The economics commentator for The Sydney Morning Herald, Mr Ross Gittins, suggested that the nation appeared to be headed for "better times" in 2018.

"It's true the economy won't be back to its normal healthy self until wages are growing a bit faster than prices," he wrote.

"But an economy with such strong and sustained growth in full-time jobs simply can't be seen as sickly. And precedent tells us that where employment goes, wages follow."

Nevertheless, there are continued concerns about Australia's vulnerability to a change of fortune in China or to the possibility of a serious housing downturn.

The housing market showed signs of cooling, with Sydney prices dropping about 1.3 per cent in the final quarter. But this comes off an astronomically high base: Sydney house prices, fuelled by record low interest rates and high foreign investment, particularly from China, have increased more than 70 per cent since 2012.

Most economists are predicting that prices will continue to decline, but steadily and without a crash.

"We do not expect a sharp decline in housing prices," said HSBC chief economist for Australia and New Zealand Paul Bloxham.

"A hard landing is possible, but we believe this would require a negative shock from abroad and a sharp rise in unemployment rate."

When it comes to politics, Australians could be forgiven for suffering ballot-box fatigue as they enter 2018 with the prospect of yet another federal election.

It has been less than 18 months since Mr Turnbull won a narrow victory in the last federal election, and only two months since the nation voted in a voluntary plebiscite to legalise same-sex marriage.

But analysts believe it is likely that Mr Turnbull will call an election sometime next year.

"Chances are by this time next year, there will have been an election," wrote political commentator Phillip Coorey in The Australian Financial Review.

Or an election could come even sooner. Mr Turnbull has had a difficult year and ends 2017 well behind in opinion surveys.

Sometime early next year, he is likely to record his 30th consecutive run of being behind the opposition in the Newspoll survey - a benchmark he cited when toppling the unpopular Tony Abbott in 2015.

If, or when, this ominous Newspoll comes, Mr Turnbull's vulnerability as leader will increase and the era of instability in Canberra will continue - and the nation will be forgiven for regretting that 2018 looks little different from its recent predecessors.

A version of this article appeared in the print edition of The Straits Times on December 28, 2017, with the headline 'Aussie economy uncertain and politics turbulent'. Print Edition | Subscribe