A day after its August business survey confirmed a further slowing in the pace of activity in key parts of the Australian economy, the National Australia Bank has added another rate cut forecast to its outlook.
The NAB said yesterday in an update to its Australian economic forecasts “previously we expected a cut in November to 0.75%, together with additional fiscal stimulus. We now expect a further cut to 0.5% in February, at which point the Reserve Bank would outline its plans on unconventional policy.
“Unless the government delivers a meaningful fiscal stimulus, a further cut to 0.25% by mid-2020 is likely, along with the adoption of non-conventional monetary policy measures,” the NAB warned.
The NAB obviously doesn’t believe that the small upturn in house prices is going to have any meaningful impact on the economy or domestic demand for some time, if ever. Nor does it place much store on the much-vaunted tax refunds having a stimulatory impact on spending – despite that being the hope of the Morrison government and the Reserve Bank.
The NAB says its own figures show that’s not happening and is now increasingly concerned about further weakness in the economy.
“…we are increasingly worried about downside risks. That is consistent with our August Business Survey which shows no let-up in the downward loss of momentum in private demand.
“Our internal data also highlights the risk that tax refunds have done little to boost spending, while business investment remains weak and the dwelling cycle could well be deeper than previously forecast. The international outlook also is not inspiring confidence.
“That said, our forecasts remain for GDP growth of around 1.7% in 2019, 2¼% in 2020 and 2½% in 2021 (as more expansionary policy kicks in). As per previous forecasts, the key dynamics continue to be a weak household sector, with only modest growth in consumption and declining dwelling investment offset by strength in public spending, business investment, and exports in the near term.
“These below trend forecasts see no improvement in the degree of labour market spare capacity and we see the unemployment rate rising slightly, reaching 5.5% by mid to end-2020 and broadly remaining there over the forecasting period. With unemployment well above current estimates of full employment, a key implication is that wage growth will likely remain weak – though we do expect it to rise gradually.
“We continue to expect the RBA to cut rates by 25 points by November – but are very aware that any further near term data weakness will see the October RBA meeting as live. With the Government seemingly reluctant to further boost fiscal policy in the near term we are moving to insert another cut into our rate profile. At this stage, we have tentatively placed it in early 2020 (February).”