A stabilising global growth backdrop as well a weaker currency are setting up Australia for a positive, albeit modest, year in 2016, Bank of America Merrill Lynch says.
The investment bank's chief economist for Australia, Alex Joiner,outlines his expectations for the ten themes this year as the nation's transition away from the mining boom continues.

1. GDP
Mr Joiner said the bank expected GDP growth to be 2.7 per cent in 2016, an improvement on 2015's expected 2.3 per cent reading. The number wasn't spectacular and the drag from the resources decline remains considerable, but the "hangover" would soon pass. 
This year should be the last of the drag, he said.
"As this drag becomes less, growth rates will likely to become at least modestly more flattering as we move into 2017."

2. Services
Services have made a significant contribution to economic growth in 2015, and will continue provided the dollar remains low.
A combination of domestic factors, including demand for healthcare, social services, education, financial services, housing and construction, as well as external demand from China led the services sector to making its biggest contribution to the economy since 2001.
"Yet these services that account for around 53 per cent of the economy and 59 per cent of employment account for only 36 per cent of the fixed asset investment," Mr Joiner said.
The lack of investment was not enough to offset declines elsewhere, but it has helped bring the unemployment rate down to 5.9 per cent.

3. Unemployment
Scepticism around the official employment data from the Australian Bureau of Statistics, which showed 126,000 new jobs in the quarter to   December, still sent a "genuine signal" about the jobs market, as RBA governor Glenn Stevens pointed out.
Bank of America Merrill Lynch sees some risks to the unemployment rate, noting more job losses are expected in the resources sector, as well as in the construction sector as housing demand winds down.
"The risks to employment will be determined by how quickly the dwelling construction cycle declines," Mr Joiner said.
He said unemployment should track at or just above 6 per cent in 2016.

4. House prices
House price growth will start to slow in 2016, with evidence suggesting that house price growth has peaked. But it's a story of two markets, namely Sydney and Melbourne, against the resources states led by their major cities Brisbane and Perth. 
High valuations and measures by the Australian Prudential Regulatory Authority to limit investment borrowing have conspired to take the heat out of the market, and will lead to a deceleration this year, "with risks to modest declines by year's end", Bank of America says.

5. Construction
The unprecedented rise in dwelling construction in 2015 has peaked, and the question for 2016 will be how fast it declines, Mr Joiner said.
Building approvals fell around 10 per cent per month in the second half of last year, meaning starts will peak sometime this quarter, taking into account the lag time.
"Despite the extremely elevated level of approvals, the contribution to real GDP has been disappointing," Mr Joiner said.
Previous booms have contributed 2 percentage points to GDP, whereas now it is around 0.9 percentage points.
The extent of the damage will depend on the speed of the decline, he said. "We do not see any catalyst in the form of materially higher interest rates exacerbating the downward cycle this year."

6. Consumption
The solid employment growth should support household spending this year. But wages should will remain low, leaving household income growth at a "lukewarm" 3 to 4 per cent. 
"This underpins household consumption growth to accelerate to 3 per cent year on year by year's end, still below average but improving," Mr Joiner said.
Household good retail spending, currently outperforming, may pull back this year as dwelling starts tail off, but other sectors may enjoy a boost from international and domestic tourists.

7. Inflation
Bank of America Merrill Lynch forecasts inflation to reach 2.7 per cent by year end, and the core measure will reach the RBA's midpoint target range of 2.5 per cent.
Below trend domestic demand and low wage growth will be holding back any bigger gains in inflation, Mr Joiner said.
Food, however, is a standalone case. The lower Australian dollar and rising demand from offshore has lifted imported food prices by 28 per cent and exported food prices by 23 per cent in the past year.
This is already being passed on in some cases. Red meat prices are up 50 per cent since 2013. The inflation effect so far is limited, but it will be a growing theme this year, he said.

8. Currency
The bank's forecast for the dollar is to hit US65&cent; this year, due to rising interest rates in the US strengthening its currency and rates remaining on hold at home.
The volatility from China is bad for resources exports in the short term, as commodity prices drop, risking further declines in terms of trade. But stabilisation in China's growth will be a benefit to the domestic economy.

9. Government
The success of Prime Minister Malcolm Turnbull's key economic reforms will depend on his and his government's ability to sell them, Mr Joiner said.
"It won't be easy as these will likely include debate around raising additional revenue over the medium term, including via the GST and/or income tax changes and superannuation reform among others," Mr Joiner said.
Outside of confidence and reform, the infrastructure agenda is needed to be reinvigorated to support economic activity, he said.

10. Interest Rates
There are risks to Australia's modest economic growth expected this year, but they won't be enough to move the central bank on interest rates, Mr Joiner said.
Compared to the same time last year, ahead of two cuts by the RBA in 2015, the Australian dollar and borrowing rates are both lower, business conditions have improved, unemployment is stable and the economic outlook looks "robust".
But the fall in commodity prices, global market volatility and associated risks are enough to keep bets skewed towards a cut this year.
"It is our expectation that global volatility should pass and commodity prices stabilise. Should this occur the case for further cuts will be eroded significantly in our view," Mr Joiner said.