The high Australian dollar is putting pressure on the economy. Source: Supplied
THE nation's jobless rate is expected to rise and economic growth to slump to below its long-term average in the coming year under the persistent weight of a high Australian dollar.
But Treasury is banking on a dramatic recovery in new home building, consumer spending and strong growth in mining export volumes to offset the peak in the mining investment boom.
Falling commodity prices and a persistently high dollar are having an acute and enduring effect on profits and prices in the economy, according to the Budget papers.
According to forecasts prepared by the federal Treasury, the pace of economic growth will slip to 2.75 per cent in the coming financial year, below its long-term average of 3.25 per cent.
Australia's unemployment rate is also forecast to jump from 5.5 per cent to 5.75 per cent by the middle of next year and remain high into 2015. Predicted annual jobs growth of 1.25 per cent for the next two financial years will be below the historic average of around 1.5 per cent
The weaker state of the jobs market is also bad news for wage earners who will watch their wages grow by a sluggish 3.5 per cent in each of the coming two financial years. This is a blow to families, being well below the 4.5 per cent growth rates of recent years.
The end of the commodity price boom will cast a pall over the budget for years to come. The main driver of economic growth of the past decade - mining investment - is expected to peak in the coming financial year. But Treasury still expects exports to grow by a fast 6.5 per cent next financial year and 7 per cent the year after, driven by exceptional growth in the volume of mining exports.
Treasury is similarly optimistic on the state of the property market, predicting a turn around in dwelling investment growth from half a percent this financial year to 5 per cent growth next financial year.
"Dwelling investment is expected to be above trend over the forcast period, with low interest rates, rising dwelling prices, favourable demographics and tight rental market conditions supporting a pickup in demand," according to the Budget papers.
A good piece of economic news is that growth in consumer prices is expected to remain well contained at 2.25 per cent, in the bottom half of the Reserve Bank's comfort zone.
This leaves the door open to further interest rate cuts by the Reserve Bank. This budget's cuts to family payments will suck demand out of the economy which the Reserve Bank will be able to counter, if needed, with lower interest rates.
