A flat property market amid a healing economy, gradually improving consumer confidence and a likely construction boom in the aftermath of the recent natural disasters in Queensland and other parts of Australia are all likely to contribute towards a year of extremes within in the Australian economy, including a period of higher inflation during the second half of 2011, according to national accounting firm Chan & Naylor.

“Whilst the Australian economy was conservatively back on track for a period of sustained growth at the end of 2010, no one can ignore the sudden and long term impact of a $6 billion plus natural disaster,” said Ken Raiss, Director of Chan & Naylor.

Unlike the RBA’s relatively low key economic assessment of recent events, including last Friday’s announcement that it is not ‘too worried’ about inflation expectations, Mr Raiss sees things differently.

“We have in Queensland an agricultural industry that has been knocked out cold as well as a large chunk of Australia’s mining and resources sector potentially down on its knees,” said Mr Raiss.

“On top of this no one knows how much private or public sector money is going to be required to rebuild and repair, but discretionary income will certainly be down.”

Once money does become available Chan & Naylor predicts a likely construction boom and subsequent stimulus in Queensland and other regions affected in Australia. If this coincides with increased consumer confidence and spending (reflecting a similar trend in the United States currently), then inflation will inevitably rise which, according to Mr Raiss, will require the Reserve Bank to apply the brakes in the usual manner of further interest rates to ‘dampen demand.’

Chan & Naylor also predicts potential disruption in the form of the Government’s proposed banking super tax in the unlikely event of this becoming policy
“Whilst it seems that for now the big banks have been chastened when it comes to selectively raising interest rates on their own accord, any such industry super tax is not only unproductive but also likely to result in their customers ending up at least sharing, if not owning the increased tax burden, through additional charges” said Mr Raiss.
China remains an unknown quantity according to Mr. Raiss and warrants ongoing monitoring given it is Australia’s largest trading partner and as such is a primary driver of our domestic economic well being.
“Given we live in a country that exports around 80 per cent of what we produce, we need to be less myopic when considering the factors that will shape our economy in coming months,” concluded Mr. Raiss.