Clouds are clearing for slow wages growth, says Deloitte

Clouds over Australia's economy are clearing, according to Deloitte Australia, which predicts a slow start to wages growth.

The Deloitte Access Economics Business Outlook for the year ahead suggests improvements in business profits and employment levels have primed the economy for some growth in wages which have been stagnating for years.

But any change will be slow. Inflation was so low, that it would be "slow to lift".

"[A]lthough underemployment is falling, it is falling from high levels. Yet the job gains that have already occurred light the path for the turn in wage gains," the report says.

Enterprise agreements usually last a few years which means there will be a lag between any improvements in economic conditions and an increase in pay packets.

The Deloitte report says none of the main sources of inflation risk - a strong economy, wage growth outstripping productivity growth or rising import prices from a falling Australian dollar - suggest a "very slow burn in which pricing pressures will lift over the next couple of years".

But that lift will be from "not much happening" to "little happening".

While inflation would not remain at its current low, the Deloitte report says "it won't bounce back off the canvas any time soon".

Deloitte partner Chris Richardson said the "clouds around Australia's economy are clearing".

Global growth for 2017 and 2018 was looking the best it has been since 2012.

Australia would likely see "national income and national production growth gradually return to a steadier path - boosting wage growth as they do so, albeit slowly so".

"Global growth has the best breadth of anything you've seen since Clive Palmer started his diet, yet world inflation remains strikingly sleepy," Mr Richardson said.

"That 'risk on' environment says the US Fed will stay rather more sidelined than was expected in early 2017, and it says the same of the Reserve Bank too.

"That leaves risky assets looking better than they have in a while, making sharemarkets happy and housing prices delirious."

Much now depended on Chinese growth and US inflation.

"Assuming the former eases back while the latter is slow to climb, the outlook may see cash rates on hold until well into 2018," Mr Richardson said.

They would then start a slow march back to 3-3?? per cent by 2021. The Australian dollar would also hold up until early 2018, before starting a slow slide closer to US70??, according to the Deloitte forecast.

Mr Richardson said the brighter news on global growth owed much to low interest rates and great momentum in China.

"Growth has mostly been debt-financed," he said. "And while it's been fun, the glory days can't last forever.

"But they'll last for at least a little longer: although interest rates will eventually rise around the world, global inflation remains as weak as a cup of boarding house tea."

This story Clouds are clearing for slow wages growth, says Deloitte first appeared on The Sydney Morning Herald.