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Treasurer Scott Morrison faces a bleak economic outlook framing his first budget in May with leading economists warning of weakening growth and stagnant wages through the rest of 2016.
BusinessDay survey points to major concern over China
The results of the annual BusinessDay financial survey paints a gloomy outlook with startling responses around China's reporting of growth rates.
More than two dozen economists from leading banks and universities have warned that Australia will face below-trend economic growth this year, a further collapse in mining investment, and a lacklustre 12 months on the sharemarket.
It puts the Turnbull government's election-year budget in an impossible position, exacerbated by warnings from Treasury secretary John Fraser this week that serious cuts need to be made to the budget in coming years if we want to avoid raising taxes.
The 26 leading economists from financial markets, academia, consultancy and industry who took part in this year's BusinessDay Scope economic survey say Australia will experience below-trend economic growth this year, with the unemployment rate stagnating rather than improving, and wage growth barely matching inflation.
They also say US economic growth will remain weak, Chinese growth will weaken and the price of iron ore will stay low while the terms of trade weaken.
It will be a muddling-through kind of year, with little to drive growth.
They say home prices, which last year soared 11.5 per cent in Sydney and 11.2 per cent in Melbourne, will this year climb just 2 and 2.8 per cent.
It means the heady days for those cities' house prices are well and truly over, with the double-digit growth rates of the last few years all but evaporating in 2016.
It is one promising feature of an otherwise tough economic outlook, as the overheated housing markets avoid a much-feared crash.
"We see Australia's housing boom as over, but expect a soft landing," HSBC's chief economist Paul Bloxham said.
This year's survey was unusual in hosting something of a write-in protest. Five of the panel said they didn't believe China's official economic growth figure. They produced forecasts for what China would say the figure was, but they thought the actual figure would be much less.
"Actual GDP is likely to be lower, but not reported," was how Nicki Hutley of Urbis Consulting put it.
The panel expects reported Chinese growth to remain near the 7 per cent target at 6.4 per cent, but it doesn't expect the growth to necessarily support Australian exports.
They also say the government cannot afford to spend large amounts on election promises this year, but it needs to talk honestly about the budget's structural problems, something that will be difficult during the election campaign.
"The government may find a way to introduce a few pre-election sweeteners, but what we really need is an indication of a long-term plan to fix the imbalance between revenues and spending," BT Financial's Chris Caton said, presaging Mr Fraser's warnings this week.
"Since this almost certainly means higher taxes, this is going to be difficult in an election year."
Mr Fraser used his first public speech of the year this week to warn the cost of government programs, such as the National Disability Insurance Scheme, will be ramping up in coming years and the Commonwealth may have to raise taxes to cover them.
"[But] simply increasing the overall tax burden to raise more revenue is not the answer," Mr Fraser said.
"It runs the real risk of distorting economic incentives and lowering international competitiveness with negative impacts on investment, growth and job creation."
All up, the panel expects economic growth of just 2.5 per cent this year, much less than the 3 per cent expected by the Reserve Bank and also less than the 2.75 per cent the Treasury believes is Australia's long-run potential.
As a result, unemployment will stay roughly steady at 5.9 per cent, and wage growth will remain barely noticeable at 2.4 per cent, just a touch above the underlying inflation rate of 2.3 per cent.