The Reserve Bank of Australia says the global economy is in better shape than it was a year ago and is positive news for the country.
But the Organisation for Economic Cooperation and Development has questioned how sustainable expansion is when business investment remains weaker than the average of past recoveries among OECD economies.
“Short-term momentum is no guarantee of medium-term sustainable growth,” the OECD warns in its interim economic outlook released on Wednesday.
It also says interest rate support remains necessary to ensure the recovery is sustained.
“Authorities face a difficult balancing act in continuing to provide support while managing financial stability risks,” the OECD says.
“The long period of low interest rates has boosted asset price valuations and created financial distortions that will be testing to resolve.”
It says Australia is among a handful of advanced economies where elevated house prices have raised financial stability risks if rising interest rates were to trigger a housing market correction.
Assistant central bank governor Luci Ellis earlier told a conference that while an improved global economy doesn’t seem to have picked up any further recently, “neither is this expansion a flash in the pan.”
“That is positive news for the Australian economy,” she told the Australian Business Economists lunch in Sydney.
Figures showing a further increase in job advertising also backs the central bank’s view of continued solid employment growth.
This upbeat outlook has economists expecting an eventual lift in interest rates here.
Economists at ANZ are now expecting two rate rises in 2018, which would lift the cash rate to 2.0 per cent from its present record low of 1.5 per cent.
In a report released on Wednesday, ANZ economists David Plank and Felicity Emmett say this view reflects the more positive economic outlook and easing downside risks.
“After these hikes we see the Bank sitting pat in 2019 as highly indebted households digest the impact of higher rates,” they said.
Among economists at the other big four banks, National Australia Bank is predicting a rate rise in August 2018, followed by further rises to 2.5 per cent by the end of 2019.
The Commonwealth Bank expects the cash rate to stay unchanged until late next year but concedes the continued solid improvement in the labour market means there is a risk of an earlier move.
But Westpac expects no change in the cash rate throughout 2018.
“With macro-prudential policies slowing housing markets, the need to raise interest rates in 2018 seems unnecessary,” Westpac chief economist Bill Evans says.