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CANBERRA - Another interest rate rise is still a risk in Australia as both political sides are likely to promise too much in this year's federal election, says independent forecaster Access Economics.
"That extra money will come atop the kerosene of the A$70 billion of policy costs splashed on to a raging economy by the federal Budget," Access director Chris Richardson said.
Although nationwide inflation risks were probably worsening from a falling unemployment rate, a turn in the productivity cycle was expected, he said in Access Economics' June business outlook released yesterday.
"There has been considerable pent-up savings in labour costs from the surge in business investment in recent years," he said.
"Although wage gains are still picking up their pace, a lift in productivity is now under way. That is easing consumer pricing pressures by reducing the cost of doing business."
And business investment had been extraordinarily strong.
"Economists are naturally unflappable. We don't marvel at much. But it is not hard to marvel at the stunning cycle in business investment that has been running since early 2002.
"After stripping out inflation effects, the lift in [capital expenditure] over the past five years is 85 per cent."
China's economic boom continues to drive a clear divide between Australia's "sunbelt" states of Western Australia, Queensland and the Northern Territory and the rest.
But there are signs that the country's most populous state, New South Wales, may soon be making an economic recovery.
Richardson said the key pre-conditions for a recovery were increasingly being met with the end of the drought and pent-up demand for housing, and state output growth could outpace official forecasts as a cocktail of good news replaces the more "toxic mix" of recent years.
In the meantime, the "sunbelt state" beneficiaries of global growth have resource strengths and fast-growing populations.
"Even ACT is getting a cut of the boom, courtesy of surging federal tax revenues," Richardson said.
"The federal Budget announced the creation of yet another 5244 public servants, many of whom will be in Canberra. That means that ACT's boom will continue for longer."
Queensland continued to look a picture of near-perfect health.
"Capacity is tight - both unemployment and rental vacancies are very low, business investment spending is very high, and the state government is pouring money into water, hospitals, roads, rail and schools."
Victorian economic growth remained surprisingly close to the surging growth of its resource-based neighbours, helped by an increasing population and gaining from the struggles of NSW.
On South Australia, he said the next few years would be crucial as the risk of boomer retirement looms early and large for Australia's oldest state.
- AAP
