Economic boom will lead to 2011 rate rises, survey finds

Australia's economy will perform strongly next year, thereby increasing the likelihood of interest rate hikes, a new poll claims.

In its quarterly survey of 18 economists, the Australian discovered that the "emerging theme" was of growing confidence in the 2011 economy, supported by sustained strength in the resources sector.

"This will push unemployment well below the full employment benchmark of five per cent and encourage wary consumers to spend," the newspaper found.

The survey also noted that economic growth predictions for next year have been revised upwards to 3.5 per cent while even stronger growth of 3.7 per cent was forecast for the 2011-12 financial year.

Such growth will add to inflationary pressures, the economists said, thereby pushing the underlying consumer price index slightly above the Reserve Bank's two to three per cent target band and making interest rate rises likely.

"A key risk to the outlook is wages growth, with a number of analysts warning that cuts to immigration combined with stronger growth could trigger a generalised break-out," noted the Australian.

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