Australia Setting up for Strong Growth Period but with Higher Interest Rates

The Australian economy is on the threshold of a major cyclical upswing, says leading economic forecaster, BIS Shrapnel. Growth will pick up speed over the next two years and build into a boom later this decade, driven by rolling investment cycles. BIS Shrapnel’s Long Term Forecasts, February 2010 Update reports the economy currently has enough spare capacity and slack in the labour markets to cater for the initial phase of the upswing without exciting either demand or cost-side pressures. However, the forecaster warns problems will occur in three-to-four years’ time when all the major construction cycles synchronise and inflationary pressures re-emerge, leading to higher interest rates.