Leading AMP Limited (ASX: AMP) economist Shane Oliver has come out with four reasons why Australia still won't have a recession.
Last year Mr Oliver made the prediction that Australian house prices in Sydney and Melbourne could fall by up to 20% from the peak to trough. It seems like he could be right with that call considering house prices have been falling for over a year and in December fell by more than 1% in the key markets.
However, it's not all bad in his opinion because of these four reasons that he published on Livewire:
Australian GDP growth continues
Mr Oliver said that the ongoing downturn in the housing cycle and its flow onto consumer spending will detract around 1% to 1.5% from the country's economic growth, but Australia is still expected to deliver GDP growth of around 2.5% to 3% which is not bad at all compared to other countries.
This should be good news for businesses like Commonwealth Bank of Australia (ASX: CBA) and Wesfarmers Ltd (ASX: WES).
However, whilst Australia's GDP is still growing the GDP per person growth is not as good.
Mining declines fade
The growth drag from falling mining investment has faded, which is why some investors are quite confident about the futures of resource-related businesses such as Emeco Holdings Limited (ASX: EHL) and Worleyparsons Limited (ASX: WOR).
Investors are also getting behind the idea of mining businesses generating a low of free cashflow which could allow them to pay big dividends in the short-term such as BHP Group Ltd (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG).
Infrastructure boom
Whilst residential approvals may be falling there's a large pipeline of infrastructure projects which should support GDP growth and construction employment numbers.
The State and Federal government infrastructure plans are a boon for Cimic Group Ltd (ASX: CIM), Lendlease Group (ASX: LLC) and Transurban Group (ASX: TCL).
RBA flexibility
The RBA could decide to further decrease the interest rate to support the housing market and devalue the Australian dollar further which would provide more support for growth.
Most economists were expecting the RBA's next move to be an increase to the interest rate, so I'm not sure the RBA is keen to cut the rate to 1% just yet. But if it did it would help the bank's funding pressures. National Australia Bank Ltd's (ASX: NAB) UBank is the latest to increase rates.
Foolish takeaway
I'm glad there are several reasons to still be positive about the Australia economy. No-one wants a recession, it would lead to falling asset prices and a rise in unemployment.
