The Economy In 2018. What’s In Store?

As we enter the new year, we consider the current state of the economy and some trends you can expect to continue into 2018.

As many Australians return to work with post-Christmas blues, a look at the current state of the economy should bring a healthy dose of optimism.

The Australian economy is heading for its 27th successive year of growth in 2018 – the longest of any developed nation in modern history. This is great news for businesses, with the NAB Business Conditions Index reaching a 20-year high in October. Since then conditions have dropped slightly, but they remain well above long-term averages.1

For consumers, confidence is still lagging behind business and this caution from consumers is understandable. We look at five areas that are helping our strong economic performance but also highlight the fragility for consumers.

1. Credit card use is up – but interest is down

Australians’ love affair with their credit cards continues to blossom, and collectively we now owe $51.4 billion on credit. But while much is made of our credit card use as a nation, in fact it accounts for just 1.9% of all household debt.2

What’s more, despite the volume of credit cards, the balances accruing interest has actually dropped to $31.4 billion – the lowest figure since 2008. On an individual level, this means the average person has a balance of $1,880 accruing interest, making it easier for everyday Australians to keep their credit card debt under control.

2. Debt levels remain high

Australian household debt has been rising steadily over the past 30 years, and is now among the highest in the world. Debt levels relative to income remain at an all-time high, due in part to low interest rates and weak income growth. A growing reliance on car and personal loans and credit cards has seen household debt increase $250,000 or 212% of net disposable income – more than double what it was 20 years ago.3  

As property prices soared across the country in 2017, home loans make up over half of all personal debt in Australia, and a further 36.5% is comprised of investments such as rental properties and shares. Student debt and personal loans make up a much smaller portion – around 2% and 3% respectively.4

3. Disposable income is under pressure

As we enter 2018, Australian households are the wealthiest they’ve ever been – with wealth rising by more than an estimated $22,000 over the past year.5  

However, household disposable income is facing pressure thanks to the low growth in wages and income, high mortgages and rental prices, and rising energy costs. As a result, Australians have been reigning in their spending over most of 2017 – with a late surge at the end of the year due to Christmas, end-of-year sales and the release of the newest iPhone model.6

4. Housing prices are stabilising

The property market is still strong across the country, with the average value of Australians home rising by almost 40 percent in the past six years. But the growth in prices is starting to settle, from 5.8% in 2016 to 4.2% in 2017.7 Many economists are predicting that prices will continue to level out over the next 12 months – although this doesn’t mean they will fall.

Meanwhile, the official interest rate remained at the record low of 1.5% over the entire year in 2017. This means more Aussie homeowners are paying off their mortgages at the lowest interest rates in 60 years.8  How long before the reserve bank increases the rate remains to be seen adding to the caution of many homeowners.

5. Jobs and wages are growing

Australia is currently enjoying an unemployment rate of just 5.4% - the lowest in almost five years. Thanks to the creation of over 380,000 new jobs, the annual rate of employment growth rose to above 3% as we headed into 2018.9  Despite this, the underemployment rate remains plateaued at 8.4% in November 2017, a decrease of just 0.3% points from the historical high of 8.7% in February 2017, maintaining an underutilisation rate at its highest in ten years.9

While income growth is still relatively slow at 2.0%, it is outpacing inflation as measured by the consumer Price Index, which ended the September quarter at 1.8%.10

The year ahead

Overall, we can be cautiously optimistic about the outlook for 2018. While consumer spending and wages growth still have a lot of room to improve, we enter the year with our economy in a solid position and many promising signs of things to come.

As New Year resolutions are tested and another quarter flies by, only time will tell whether our economy can sustain its unprecedented growth.



1  National Australia Bank, NAB Monthly Business Survey, November 2017.
2, Credit card debt is the lowest it has been in more than a decade, November 2017.
3  OECD (2018), Household debt (indicator). doi: 10.1787/f03b6469-en (Accessed on 11 January 2018)
4, Australians’ household debt nears highest worldwide, December 2017.
5  ABS, data as at 30 September 2017.
6, It looks like Australia’s retail spending strike is over, January 2018.
7  CoreLogic, Home Value Index, December 2017.
8  Reserve Bank of Australia, data as at 11 January 2018.
9  ABS, data as at 30 November 2017.
10  Reserve Bank of Australia, data as at 30 September 2017.