Economists expect Treasurer Scott Morrison can present a positive picture in next month’s budget, despite fears of an escalating trade war between China and the US.
The stoush between the US and China has rattled financial markets and dented local confidence.
But in its quarterly economic outlook, KPMG Economics is forecasting growth of 2.9 per cent for this financial year, a marked pick-up from the modest two per cent expansion in the 2016/17 year.
Reserve Bank governor Philip Lowe agrees the Australian economy should see a pick-up, telling a conference in Perth this will come through increased investment and hiring, as well as a lift in exports.
But he also warned there were some uncertainties around this outlook, with the main ones lying in the international arena.
“A serious escalation of trade tensions would put the health of the global economy at risk and damage the Australian economy,” he told Australia-Israel Chamber of Commerce.
KPMG’s forecast comes after the disappointing 2.4 per cent economic growth rate over the 2017 calendar year which was the result of a downturn in exports towards the end of the year.
But KPMG Australia chief economist Brendan Rynne expects exports to strengthen, supported by “healthy global industrial growth and demand for commodities”.
“Global economic conditions remained strong in the first quarter of 2018 and this momentum is expected to continue through the year,” Mr Rynne said.
A separate analysis by Deloitte Access Economics for the Minerals Council of Australia found the mining sector is enjoying its most profitable period in years, driven by stronger commodity prices and reversing the fall between 2012 and 2015.
This has resulted in Australian mining companies paying $12.1 billion tax in 2016/17, almost four times as much as the previous financial year and the highest since the mining investment boom in 2011/12.
“This means that mining companies are estimated to have paid one-in-every-five dollars of Australia’s company tax take,” the council’s interim chief executive David Byers said in a statement.
KPMG said while the threat of a trade war “lurks darkly in the corner”, the good news is the global economy was still pushing strongly ahead, predicting a 3.8 per cent expansion both this year and next.
US shares were almost two per cent higher on Tuesday as concerns about rising trade tensions between the US and China eased after President Xi Jinping said China will cut tariffs and widen market access for foreign investors.
However, such positivity failed to flow through to the Australian market where shares eased slightly.
Share market volatility over potential tariff wars and declining house prices since the start of the year has made consumers more nervous about the outlook, Westpac chief economist Bill Evans said.
The monthly Westpac-Melbourne Institute consumer confidence index eased 0.6 per cent in April.
While optimists still outnumbered pessimists for a fifth consecutive month, the index was below a level typically associated with robust consumer spending, Mr Evans said.