Low wages, high debts and housing bubble threaten the Australian economy in 2018

"We expect the economy to grow by 2.75 to 3 per cent in 2018. Such an outcome is around our best guess at Australia's potential growth rate.

"The year-average forecast conceals what we expect to be an improving trend."

"I think the Australian economy is still a 2.5 per cent economy rather than a 3 per cent one. The mining bust is pretty much over and businesses are starting to open their wallets.

"But this is happening as households are shutting theirs, as the weaker housing market is weighing on activity, and as economic growth in China has started to slow.

"So 2018 will probably be another year in which economic growth is not weak but neither will it be as good as most expect."

"We expect next year to be better, as capital spending continues to heal.

"However, we still expect the economy (domestic demand) to grow below potential, which makes it unlikely that the labour market tightens sufficiently to bring core inflation back towards target.

"Further, we see stretched household balance sheets bringing headwinds to consumption, and heightened risks to the housing market. This will keep the RBA watchful on growth, in particular."

"We expect GDP to firm to 2.75 per cent in 2018, around trend, underpinned by stronger net exports, public spending and a small improvement in business investment as momentum in global growth continues.

"Weaker consumption and a softer housing market will, however, temper activity with private final demand likely to be soft."

"Employment growth will remain robust, with investment recovering — both mining and non-mining is looking better.

"Government spending, both consumption and infrastructure, will also be strong."

"The risk is that 2018 could finally be the year that the housing boom turns to bust.

"Our forecast is that there will be a soft-landing, where prices occasionally fall and occasionally rise but are broadly stable during the year.

"But while the chances of a rebound in house price inflation appear very slim, the possibility that prices fall by 5 per cent or more is greater."

"Positive risk is the surprisingly stronger commodity prices on still accelerating global growth.

"Negative risk is house price deflation as debt burden and oversupply and low wage growth hit home."

"The combination of weak wages growth at a time of high household debt levels will constrain the consumer.

"Strong population growth means the expected residential construction downturn doesn't happen."

"Domestically, weak consumption.

"The Australian consumer offers little cushion for a central bank that requires trend or better growth in order to facilitate target-consistent inflation outcomes.

"This places greater pressure on other components of domestic demand, such as government investment (infrastructure) and private capex, to deliver robust outcomes."

"Wage growth will probably edge up, but any rise will be underwhelming.

"The big picture is that Australians need to get used to the idea that 2018 will be another year of unusually low wage growth. It shouldn't really be a surprise to anyone.

"Wage growth is pretty much where it should be when you take into account the large amount of spare capacity in the labour market as indicated by the underutilisation rate."

"Wages are unlikely to pick up much during the year given the experience in overseas markets who have much lower unemployment rates than in Australia.

"This is due to globalisation of product and labour markets, ample spare capacity in labour market as evidenced by rebound in labour force participation rates, and the legacy of the global financial crisis."

Michael Blythe,

Commonwealth Bank

"Probably very little — wages growth should finish the year somewhere between 2 and 2.5 per cent, continuing the theme of stabilisation at low levels, largely because there is still significant excess capacity in the labour market.

"Underemployment or underutilisation of labour both remain elevated."

"There will be two. First, the Fed will probably raise interest rates by 100 basis points next year, which would be more hikes than most people expect.

"Second, economic growth in China will probably be weaker than is widely expected."

"We will be watching the US very closely in 2018.

"Our central scenario is that growth will be good, but that long yields will remain relatively low (kept down by global factors including negative euro area rates and a zero 10-year yield in Japan).

"With unemployment already very low, however, the risk is that the tax package drives a general reflation, which could see global yields move higher, putting pressure on risk assets."

"Growth in China. In the US, the risk of a spike in inflation which forces the Fed onto a more aggressive trajectory with rates.

"Geopolitical risks are North Korea and Iran withdrawing from the nuclear arrangement.

"Italian elections are unlikely to be too problematic, and worse news on Brexit is likely to be contained to the UK."