In November, the Reserve Bank of Australia (RBA) downgraded its growth forecast for 2019 to 2.25% – well below the forecast of 3.25% a year ago. This downgrade is consistent with the average downgrade observed on its growth forecasts since 2012.
Although it predicts growth of 2.75% in 2020, the risk is that, again, this is too optimistic. There are not many signs of the "slight turning point" in consumer spending that RBA Governor Philip Lowe spoke of, with real retail sales down in the September quarter and registrations vehicles further down in October.
The RBA sees little progress in reducing unemployment before 2021, with wage growth stuck at 2.3% for the next two years. This means nothing about the 8.5% of the underemployed workforce.
After having revised down his inflation forecasts, he sees inflation staying below target for the next two years. After almost five years of below-target inflation, the inflation target is losing credibility. In fact, the RBA says "it is possible that salary expectations have anchored to low levels due to an extended period of low wages and inflation".
In my opinion, the RBA is likely to further loosen monetary policy in order to achieve "full employment and the achievement of the inflation target over time".
History shows that it is entirely normal for consumer confidence to decrease during the initial phase of a rate cut cycle. Indeed, both react to the same bad news on the economy and because monetary easing only spurs growth after a lag. The current drop in rates and confidence is therefore not unusual.
Although I disagree with the argument that rate cuts make matters worse, the arguments in favor of an increasingly strong tax stimulus. This should involve a combination of measures, such as implementing some of the second stage tax cuts, stimulating Newstart, incentives for large companies to invest more and increasing spending. of infrastructure. The fiscal stimulus would give a much more secure boost to the economy and could be more fairly targeted than the brutal monetary easing instrument.
Aid for drought will help, but it is too small at less than 0.1% of GDP to have much impact on the economy. Finance Minister Mathias Cormann has hinted that he is willing to propose tax cuts, but that could be a long way off.
In the absence of any significant fiscal stimulus shortly, the RBA continues to press for further interest rate cuts to be necessary to fulfill its mandate. However, as banks' interest margins are under pressure, this should be accompanied by quantitative easing measures aimed at reducing bank financing costs and increasing the pass-through by banks of rate cuts to borrowers . The forecast for the RBA should also be tightened, for example, in the sense that the RBA "does not plan to raise interest rates until inflation is near the middle of the inflation target of 2 to 3% ".
Shane Oliver
is the head of AMP Capital's investment strategy and chief economist
Top suburbs:
leumeah
,
sunshine
,
tank
,
spring wood
,
Narara
Get help with your investment property
Do you need help finding the right loan for your investment?
When investing in a property, it is important to make sure that you not only have the lowest rate available that you can get, but
Just fill in a few details here below and we will then arrange a local mortgage broker to contact you and determine the features or types of loans that are right for you. Needs. We will even help you with the paperwork. In addition, an appointment is free.
We value your privacy and treat all of your information seriously – you can check
our privacy policy here
