Breaking News
0

RBA Slashes Growth Forecasts as Property Pressures Households

ForexFeb 08, 2019 04:56
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. RBA Slashes Growth Forecasts as Property Pressures Households

(Bloomberg) -- Australia’s central bank cut growth and inflation forecasts in response to weaker consumption as it assesses how slumping property prices could reverberate across the economy.

In its quarterly update of forecasts, the Reserve Bank of Australia drilled deeply into factors impacting the outlook amid a darkening picture at home and abroad. Economic growth in the year to June 2019 was cut to 2.5 percent from 3.25 percent and by half a percentage point in the following 12 months, according to the Statement on Monetary Policy released in Sydney Friday.

“The board has paid close attention to developments in the housing market and the implications that lower prices might have for construction activity and households’ spending decisions,” the RBA said. “The board has also considered how the prospects for consumption growth would be affected if household income growth does not pick up.”

The Australian dollar fell, buying 70.66 U.S. cents at 12:46 p.m. in Sydney, compared with 70.95 cents before the report. Traders ramped up bets on an interest-rate cut by November, with futures data now showing a better than 90 percent chance.

Governor Philip Lowe this week abandoned a policy tightening bias and instead sees the chances of an interest-rate cut or a hike as “more evenly balanced.” While the jobs market remains a source of strength, a slew of weaker data in the past two months -- mainly connected to the deteriorating housing market -- forced the RBA to adjust its stance.

The RBA was taken aback by the statistics bureau’s recent downward revision of consumption growth for the past three years, and as a result “the starting point for GDP growth forecasts is three-quarters of a percentage point lower than previously expected.” It now predicts consumption growth to be 2.75 percent over the forecast period rather than the 3 percent earlier estimated.

Still, the central bank is persisting in its view that a stronger labor market will eventually lead to faster wage growth and a pickup in inflation to within the 2 to 3 percent target range. That’s been the thinking behind keeping the cash rate steady at a record-low 1.5 percent for 2-1/2 years.

The forecasts show core inflation reaching 2 percent at the end of this year and headline inflation reaching there in mid-2020. Headline inflation is predicted to slump to 1.25 percent in the year through June this year due to lower oil prices.

The central bank estimated that a sustained 15 percent fall in oil prices would cut about half a point from CPI and could “cumulatively” lower core inflation by a quarter point through indirect effects over two to three years.

The RBA acknowledge it’s concerned about the increasing number of factors that could disrupt its central scenario, including from offshore. Downside risks to the global outlook have increased, it said, noting trade tensions “are beginning to affect the level and pattern of trade.”

It said a range of indicators “suggest a more pronounced slowing” of momentum in China. Some of that stems from efforts to rein in shadow financing as well as the impact of tariff increases. Australia is the most China-dependent economy in the developed world.

Friday’s statement contained the usual forecasts for growth, inflation and unemployment -- seen falling to 4.75 percent in December 2020; but it also contained a separate sheet of more detailed forecasts on everything from household consumption to wages to public demand.

RBA Slashes Growth Forecasts as Property Pressures Households
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email