No surprise yesterday from the Reserve Bank’s decision to sit on interest rates, the central bank leaving the cash rate unchanged at 2% for the tenth month in a row.
The decision was widely expected and had no impact on the dollar or the stockmarket.
Later this morning the GDP figure for the December quarter and 2015 will be released. Don’t be surprised if it turns out to be quite low as the flow data yesterday wasn’t all that encouraging.
But that is economic history and as usual the RBA will note that data and then look forward into 2016 and wonder about the strength of demand, the local jobs market and whether offshore problems will impact Australia – all of which were apparent from yesterday’s post meeting statement from Governor Glenn Stevens.
As usual the RBA maintained its easing bias at the end of yesterday’s statement, saying that the current low inflation “would provide scope for easier policy, should that be appropriate to lend support to demand”.
In fact the tone to yesterday’s statement from Governor Glenn Stevens was similar to the February statement, with the wording of the description of the state of the Australian economy also similar.
“In Australia, the available information suggests that the expansion in the non-mining parts of the economy strengthened during 2015 despite the contraction in spending in mining investment. This was reflected in improved labour market conditions.The pace of lending to businesses also picked up, as we saw with yesterday’s lending data for January.
“In the period ahead, new information should allow the Board to judge whether the improvement in labour market conditions is continuing and whether the recent financial turbulence portends weaker global and domestic demand. Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand,” the statement said.
(Note the qualification about the strength of the labour market. That would have resulted from the weakish January jobs report from the Bureau of Statistics.)
The AMP’s chief economist Dr Shane Oliver said in a note yesterday afternoon: “Our view remains that the RBA will cut interest rates again this year reflecting the risks around the global economy, weaker than expected commodity prices, still subdued growth in Australia at a time when the contribution from housing construction is slowing, a more dovish Fed threatening a higher Australian dollar and continued low inflation… this may not come till May. Given the RBA’s focus on inflation the March quarter CPI to be released in late April will be worth watching.
"However, whether there is another rate cut or not from the RBA, it remains very hard to see rate hikes any time soon. So the period of low interest rates is set to continue,” Dr Oliver wrote.
Other data out yesterday for January was mixed though – a slow down – for the third month in a row, in building approvals and another rise in house prices in February. But the manufacturing sector saw another strong month, thanks to the weaker Aussie dollar and the Australian Industry Group’s performance of manufacturing index rose two points in February to 53.5.
That’s the highest level since July 2010 and the eighth consecutive month of growth. Nationally the media house price rose 0.5% last month, down from the 0.9% rise in January, according to Corelogic RP Data’s February Home Value Index. Sydney house prices rose 0.5% in February, the second rise in 2016, while Hobart – where prices rose 2.9% – was the best performer, followed by Adelaide and Brisbane. All three were depressed markets or saw weak rises in 2015. Prices in Melbourne rose 0.3% in February but Perth saw a fall of 1.1%.
Building approvals dropped 7.5% in January, from a revised 8.6% fall (previously a 9.2% drop) in December. It was bigger than the 3% fall forecast by the market.
It took the year-on-year rate to a fall of 15.5% in January, from a revised 3.3% drop (-2.5%). The culprit was a big drop in the number of home units and apartments approved – down 10.8%. But there was also a big 6% fall in the number of new private houses approved.
The December quarter data yesterday showed no contribution from exports (there was a big boost in September and the March quarter, but a big negative in the June quarter).
The Bureau of Statistics said yesterday that the trade data would not have any impact on the GDP number. Economists had been looking for an 0.3% contribution to GDP.
Coming on top of a small negative contribution from the fall in inventories, and bigger negatives from the falls in wages, salaries and corporate profits, the drivers for GDP are likely to be domestic consumption (retail sales will make a positive impact) and government spending.
Government spending rose 0.7% in the December quarter, according to the government finance statistics from the Bureau yesterday.
Economists now warn that the GDP figure could be under 0.4% to 0.5% quarter on quarter.
