Report: post-election economic clouds looming

BIS Shrapnel’s Long Term Forecasts, 2010–2025 report predicts economic growth will accelerate and average 3.8 per cent per annum over the next three years. The report also forecasts solid employment growth to push the unemployment rate down to below four per cent by early-to-mid 2013.
“We still have a number of critical policy issues which need to be addressed, including a serious housing shortage, ongoing infrastructure deficiencies and bottlenecks and, of course, a skills shortage,” said report author and BIS Shrapnel senior economist, Richard Robinson.
“These capacity constraints will remain a problem for the economy while the mining investment boom continues,” says Robinson. “This boom, when it really ramps in one to two years, will leave little room for governments and businesses to address these chronic shortages, and the miners themselves will struggle to get through their projects.”
Tightening labour markets and accelerating household spending will lead to higher consumer price inflation (CPI), forcing cash rates up towards 6.5 per cent and housing rates towards nine per cent.
BIS Shrapnel said that during the recent Election campaign, real policy issues for the economy have either been given cursory consideration or put in the “too hard basket”.
BIS Shrapnel warned that while ever mining investment continues to run at, or above, the current high levels there is little room for other investment cycles, particularly given labour shortages. The economy is starting from a position of minimal spare capacity in labour and product markets. Dwelling activity is the first private sector investment cycle to gain momentum post-downturn, taking up the slack from public sector activity which was a key driver of growth through 2008/09 and 2009/10, but is set to weaken over the next two to three years.
Although the next round of mining projects is now largely locked in, with oil and gas activity leading the way, it will take time for activity to gain momentum. Meanwhile, financial conditions are not yet strong enough to justify a further round of commercial and industrial building, which is still two to three years away from gaining momentum.
“This means there is now a limited opportunity for the public sector to fast track much needed infrastructure spending at a time when there is little risk of crowding out private sector activity,” said Robinson. “However, the election has been partly fought around which party can most swiftly bring the budget back to surplus, which will see investment weaken.”