Profits and jobs are up in Australia, so wages should be next.
Profits and jobs are up in Australia, so wages should be next.

Profits and jobs are up in Australia, so wages should be next.

Clouds over Australia’s economy are clearing, according to Deloitte Australia, which predicts a start to wages growth, albeit a slow start.

The Deloitte Access Economics Business Outlook for the year ahead suggests improvements in business profits and employment levels have primed the economy for some growth in wages which have been stagnating for years.

Chris Richardson Partner at Deloitte Access Economics believes Australia’s economy looks like it will dodge the dual risks of a sharp fall in housing prices and a slowing in China. He believes the most likely path for Australia doesn’t see a triggering of China and/or housing risks. Rather he sees both national income and national production growth gradually return to a steadier path, boosting wage growth as they do so, albeit slowly.

He sees a gradual recovery in wages from their current record lows of less than 2% annual growth.

“Profits are up, jobs are up, and the next train to leave the station will be wages,” he says.

deloittee-access-wages-chart

“None of the three big drivers of inflation risk — a strong economy giving businesses pricing power, or wage growth outstripping productivity growth, or rising import prices from a falling $A — currently point to anything like a surge in pricing pressures.

“At best they spell out a very slow burn in which pressures will lift over the next couple of years.”

He describes Australian job growth as a thing of beauty.

“And it looks set to stay beautiful for a while longer, as good global growth lifts the demand for both labour and capital, thereby boosting the outlook for both jobs and business investment,” Richardson says.

However whilst change will occur, the change will be slow.

Underemployment is falling, however it is falling from high levels. The job gains that have already occurred light the path for the turn in wage gains,” the report says.

Enterprise agreements usually last a few years which means there will be a lag between any improvements in economic conditions and an increase in pay packets.

Prime Minister Malcolm Turnbull is “thrilled” with predictions a lift in wages growth – the missing link in Australia’s economic expansion – is on the cards.

“I’m very pleased to see Chris Richardson’s forecast that we’re going to see strong wages growth. That’s good news,” he told reporters in Canberra.

Wages growth at 1.9 per cent is the lowest annual rate in at least 20 years and only just matching the rate of inflation.

New figures also show wage growth through enterprise bargaining is also gravitating towards the inflation rate when normally there is a premium as agreements take into productivity arrangements over a number of years.

 

Post source : Deloitte Access Economics

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