No rate cut this week but there will be confirmation the Australian economy is staggering slowly towards stagnation with growth only saved by the one-off boost from surging iron ore prices which won’t be repeated this quarter.
Tomorrow will see the Reserve Bank leave its cash rate steady at 1%, but with a bias to cutting which economists reckon will again happen in November.
Some economists though caution that the central bank could slip in a cut in the cash rate of 0.75% tomorrow ahead of what is expected to be a very weak set of national accounts for the June quarter to be released on Wednesday.
The AMP’s Dr. Shane Oliver says the central bank “should be cutting rates” tomorrow but “looks likely to leave them on hold.”
“While house prices in Sydney and Melbourne may be bouncing higher, growth looks to have remained very soft in the June quarter, the growth outlook remains weak with the housing construction downturn gathering pace and threat from Trump’s trade war increasing and there is no sign of any pick up in wages growth and inflation with unemployment looking more likely to drift up than down,” he wrote at the weekend.
“However, the RBA looks inclined to wait for an “accumulation of additional evidence” including seeing what sort of impact the recent rate cuts and tax cuts have provided to the economy. So, it’s likely to remain on hold in wait and see mode on Tuesday.
“That said it’s a close call – we wouldn’t be surprised if the RBA cuts and we continue to see two more rate cuts by year-end taking the cash rate to 0.5%,” Dr. Oliver wrote.
The June quarter GDP and national accounts on Wednesday will make sobering reading.
Some economists reckon that if growth comes in at 0.4% (from the March quarter), and there is no revision to previous quarters, Australian June quarter GDP is likely show growth at its weakest in 19 years.
The AMP’s Dr. Oliver says “We expect a 0.4% quarter on quarter rise in GDP but with annual growth slowing further to just 1.3% year on year from 1.8% in the March quarter.
“This would be slower than the GFC low of 1.5% year on year and the weakest annual gain seen since December quarter 2000 after the GST started up.”
“Net exports are expected to provide a 0.2 percentage point contribution to growth as are inventories and public spending growth is likely to be positive, but this is expected be offset by continued softness in consumer spending and falling dwelling and business investment.”
As of Friday, the National Australia bank sees growth at 0.5% quarter on quarter and annual growth at 1.5% (the lowest since the GFC).
“While growth is slightly stronger than in the March quarter, boosted by a sharp lift in net exports, private sector growth likely contracted again, with consumption still soft, dwelling investment falling further and a marginal drag from business investment,“ NAB economists wrote on Friday.
Today we get more data for the national accounts – wages and salaries, stocks and sales. Tomorrow there’s government financing statistics (which have a hard to forecast impact on the national accounts) and the current account for the June quarter, which is likely to show the first surplus since 1975.
Dr Oliver says “ …the current account (Tuesday) is expected to show its first surplus since 1975, retail sales for July (Tuesday) are likely to show a 0.3% lift helped by tax cuts and the trade surplus for July (Thursday) is expected to have remained big, but expect a sharp fall for August as the recent slump in iron ore and coal prices impact.”
