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Diary: RBA Minutes, MYEFO, Trump Taxes

Christmas is on the way (a week today), but in Washington its all about the Trump tax package, and the economy, while in Europe Brexit still grabs headlines.

In Australia it's the start of the wind down, but before that there’s the ANZ Bank’s AGM on Tuesday, as well as the minutes from the December meeting of the Reserve Bank board.

But later today the Federal Government releases its Mid Year Economic and Fiscal Outlook and it is likely to show a reduction in the projected 2017-18 budget deficit from $US29 billion to around $US25 billion.

The AMP’s Chief Economist, Dr Shane Oliver says the fall will be due to the stronger labour market and more jobs, plus rising corporate tax payments.

GST collections though will be weak because of the slide in household spending while the government’s forecasts for wages growth, nominal GDP and the inflation rate, as well as the unemployment rate will all be recast.

The budget forecast that "Household consumption growth has been relatively moderate in recent years compared with long-run historical growth rates. It is expected to pick up over the forecast horizon to 2.75 per cent in 2017-18 and 3 per cent in 2018-19. It is expected that consumption will continue to grow by more than household income, resulting in a further decline in the household saving rate.”

The savings rate has fallen - but picked up to 3.2% in the September quarter as consumer slashed discretionary spending and national income rose slightly. But the savings rate is down from more than 8%-9% around five years ago.

Household consumption rose by just 0.1% in the September quarter and 2.2% annually. Clearly that’s too low and along with weak wages growth, will be the part of the Mid Year Statement that will be most vulnerable to challenge.

The budget forecast nominal GDP to rise 4% in 2017-18, an unemployment rate of 5.75 (5.4% for the past three months, a five year low), inflation of 2% (currently around 1.6%).the participation rate was forecast at 64.5% for 2017-18, which again is clearly too low with the rate rising to 65.5% in November (seasonally adjusted).

Dr Oliver also said the minutes from the RBA’s last board meeting of 2017 “are likely to be consistent with the view that the RBA remains optimistic about the outlook but sees no case for an imminent rate hike.”

The ANZ annual meeting tomorrow is expected to see more moans and groans about a loss of trust, but shareholders will be wanting to see what the bank plans to do with the near $3 billion it will get from Zurich for selling its life insurance arm.

On top of this there will be the fall out from John Alexander's win in the Bennelong by election, as well as the split in the Murdoch media empire

Dr Oliver says that in the US, the main focus will be on whether the Trump tax reform package will be wrapped up by year end and a longer spending package will be agreed to head of a partial government shutdown on December 23.

"We remain of the view that both will be achieved. On the shutdown risk, while the argy bargy is being ramped up we remain of the view that it will be avoided because Congressional Republicans and Democrats are well aware after the 2013 experience of the blame they will take if a shutdown happens, particularly if it’s over Christmas/New Year. It’s also worth noting that there have been 12 shutdowns since 1981 and their economic impact tends to be modest,” Dr Oliver wrote at the weekend.

On the data front in the US, Dr Oliver says we can expect the NAHB home builders conditions index (tonight), housing starts (tomorrow night), home sales data (Wednesday and Friday nights ) and house prices gains (Thursday night) to remain solid.

“Underlying durable goods orders (Friday) are likely to remain in a rising trend and the core private consumption deflator (also Friday) is likely to show inflation remaining around 1.4% year on year,” Dr Oliver noted.

The biggest corporate result this week with be the quarterly from Fed Ex, while some smaller retailers are down to reveal their figures for their latest quarters.

In Europe, polls suggest a close result in the Catalonia election (December 21) in terms of support for separatist parties versus anti-independence parties but given the experience of the last few months the new Catalan government is unlikely to make another unilateral independence push.

In London there will be more discussion in the UK government about Brexit’s second stage.

In Asia the Bank of Japan (Thursday) is unlikely to make any changes to monetary policy – growth is looking good but core inflation at an annual 0.2% is a long way below target.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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