The outlook for the Australian economy is relatively benign, with Blackrock’s director of fixed income and product strategy saying it will continue to “bumble along” despite rising unemployment, trade concerns and likely spending restraints.

Speaking at an Institute of Managed Account Professionals event in Sydney yesterday, Chris Baker said that while the home-grown ETF provider does have some concerns about the local economy, “some things have gone right”.

Our trade balance is healthy, driven by commodity prices, as is the federal budget, Baker said. Growth is positive with over $20 billion spent on infrastructure since 2015, while property markets in Sydney and Melbourne should rally off their current levels.

The real challenge for the Australian economy is unemployment, however. This includes rising levels of underemployment, which refers to people that can only get part time work or can’t find work that properly suits their skills and experience.

“Underemployment remains a challenge for the RBA,” Baker said. “We think that’s going to be a drag on the economy.”

According to the Australian Bureau of Statistics the unemployment rate rose to 5.3 per cent in August.

Baker, who spent a decade at Mercer before taking up the reigns at Blackrock in February, noted concerns over a US/China trade war as another red flag.

“Any sort of slowing effects on China is going to have an effect on Australia as well,” Baker added.

On credit growth, Blackrock has seen a loosening of macro-prudential restrictions lately, but Baker reckons spending will continue to be restrained given how little highly indebted consumers are spending. Indebted homeowners will continue to deleverage, he predicts, as they strive to pay off their loans.“We expect the household saving rate to continue to increase as households repair their balance sheets,” he said.

Baker reckons fiscal policy will figure in the near future for the Australian economy, which should provide a short-term boost to GDP.

“Overall, our view is that things in Australia will continue to bumble along,” he said. There are no major concerns for a recession, but there are other things to be conscious of.”

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