Another significant week awaits the Australian economy with the last Reserve Bank (RBA) board meeting of the year tomorrow and the release of September quarter national accounts and GDP figures on Wednesday.
No rate cut is expected from the RBA's last meeting of the year. The cash rate will start 2024 at 4.35%, up from 3.10% a year ago.
With yields on Australian 10-year bonds sharply declining in the past month, the RBA is effectively facing a de facto 0.50% drop in rates.
Traders have disregarded November's rate hike by the RBA and have further contributed to the drop, putting the central bank in a challenging position regarding its concerns about inflation.
If the lower 10-year yield continues or keeps easing, when will the big four banks begin to reduce their fixed-term fixed-rate home mortgage deals to rebuild their loan portfolios?
However, the RBA's meeting outcome leaves the national accounts and GDP data of greater interest for the markets.
Releases from the Australian Bureau of Statistics on business inventories, profits, and wages (today), as well as the September quarter's current account data and government finances (both tomorrow), will provide more context for the national accounts figures to be released on Wednesday.
AMP Chief Economist Shane Oliver anticipates a 0.4% rise in GDP for the quarter, resulting in an annual rate of 1.8% (subject to revisions). Dr. Oliver notes that this slowdown is due to "soft consumer spending growth and a small drag from net exports and public spending, but contributions from housing investment, business investment, and inventories."
National Australia Bank's economics team expects GDP to rise by 0.5% quarter on quarter for an annual rate of 1.9%. They believe consumption growth remained soft in Q3, dwelling investment made a small contribution, and business investment had a neutral impact on GDP. Net exports are expected to subtract 0.1 percentage points from growth, offset by a 0.2 percentage point contribution from inventories. Government spending is also expected to contribute positively to growth.
Moody's economics group takes a slightly gloomier view, forecasting a slowdown in third-quarter GDP growth to 0.2% quarter on quarter due to slowed family spending, decreased business investment, and a decline in dwelling investment.
The RBA's meeting tomorrow will be less impactful following last month's rate rise. The central bank's view of the economy has not changed significantly in the past four weeks, as it remains wary of persistent or entrenched inflation risks.
Last week's monthly CPI indicator for October came in lower than expected at an annual rate of 4.9%, down from 5.6%, with an implied monthly decrease of 0.3%. This was driven by weakness in rents, petrol prices, travel, meat, furniture, household appliances, and lower energy prices, partly due to Commonwealth government assistance.
AMP Chief Economist Shane Oliver suggests caution, noting that some services were not measured, and underlying measures of inflation fell by less. However, the good news is that the downtrend appears to be resuming after two relatively higher months.
The National Australia Bank and economists from Moody's share this perspective. Other upcoming data releases include the Melbourne Institute's Inflation Gauge, ANZ job ads, business indicators, and housing finance (today), with housing finance expected to show a 1% gain. Tomorrow, net exports and public spending data will be released, followed by trade data (Thursday), which is expected to show a $7.4 billion goods trade surplus, according to Dr. Oliver.
