The National Australia Bank has lifted its forecasts for the Australian economy a day after its monthly business conditions survey showed another decade high in activity (but a small dip in confidence, although that remains at very high levels).
The NAB doesn’t see the Reserve Bank lifting rates for another 11 months with increases of 0.25% next August and a second in November of next year.
The bank reckons there will be two more in 2019 and the cash rate will be at 2.50% by the end of that year.
The bank said that while the retail sector was depressed, other parts of the economy were doing better with employment picking up.
The bank said that “stronger employment, GDP and investment data have seen us revise our forecasts lower for unemployment, and slightly increase our forecasts for GDP growth and inflation.”
The bank sees GDP growth building in late 2017, as LNG exports continue to surge and government spending remains strong. “ e still expect growth momentum to ease somewhat through 2018 and 2019 to around 2½% – which is in line with NAB’s estimates of potential growth – although domestic demand is a bit higher in 2019,” The Bank said yesterday.
“While we remain cautious about aspects of the economic outlook, we now believe the labour market will strengthen enough to allow the RBA to remove some of the emergency stimulus currently in place.”
The bank saids that while June quarter growth of 0.8% was stronger than expected and a bounce-back from weather disruptions in Q1, "non-mining and government investment were encouraging. The main area of weakness in the figures was in wages growth, as well as dwelling construction.”
“This is despite particular strength in the labour market so far this year, with employment growth averaging 29,000 a month (with three quarters of those jobs full-time) and the unemployment rate easing to 5.6% in July from a recent high of 5.9% in March.”
The bank sees "stronger labour market which feeds into (slightly) higher wages growth. The unemployment rate is forecast to ease to 5.4% by end-2017, 5.3% by end-18 and 5.1% by end-19.”
“Higher investment intentions are a clearer sign that non-mining investment will build, which together with strong government infrastructure spending, will help offset weakness in mining investment.”
The NAB says it saw the risks to its outlook for the economy being a failure of the Aussie dollar to fall gradually “as we anticipate”, a loss of momentum in the labour market, “evidence that wages growth is not responding, or evidence of household distress which would also be reason for pause.”
