The coming week is one of the big weeks of the year for the Australian economy – the first week of March, June, September, and December is when the monthly meeting of the Reserve Bank board, the national accounts for the preceding quarter and start of month economic data such as retail sales, building approvals and trade are released.
After the shock slowing in the September quarter GDP to growth of just 0.3% from 0.9% in the June quarter, with the annual rate tumbling from 3.4% to 2.8%, economists are tipping a further slowing.
Any revisions in the previous quarters’ data, annual growth in the December quarter could slow to a range of 2.4% to 2.6% with most quarter on quarter estimates around 0.2% (AMP) to 0.4% (ANZ and NAB).
Figures out today for wages, salaries sales and business stocks and the current account and government finance and investment (tomorrow) could see those estimates alter, but most forecasts are around that level after last week’s sold December quarter private investment figures (and solid outlook) and Wednesday’s big fall in construction spending in the December quarter and large revision downwards for the three months to September.
In other words the outlook is gloomy so far as market economists (nervy even) are concerned, and the Reserve Bank judging by the big change in its monetary policy stance last month (which saw the bank move from a ‘rate rise next’ stance to an ‘even money’ and don’t be surprised if we cut’ outlook) is just as uncertain.
The AMP’s chief economist, Dr. Shane Oliver has been forecasting two rate cuts later this year from the RBA for the past month, Westpac’s Bill Evans joined him the week before last and the NAB says the central bank will not be moving rates for a while – several years is one estimate. The last rate cut was in August 2016.
The bank’s new concerns are all based on the combination of weak household income growth since 2016 (slower and lower than previously thought), continuing sluggish wage growth, weak consumption spending (again weaker than previously thought), overlaid with some concerns about weakening house prices (but not as big an issue as the property conscious media would have us believe.
The monthly CoreLogic property price data on Friday showed more falls in Sydney and Melbourne in February – house prices in Sydney down 1.1% last month to be down 11.5% over the past 12 months (and at July 2016 levels), while in Melbourne prices fell 1.2% to be down 11.5% as well and back to November 2016 levels.
That brought out the usual doom and gloom merchants in the media. But they have been slow in understanding what the Reserve Bank really thinks about falling house prices – at the moment it is a “second order issue” according to governor Phillip Lowe at his appearance before the House of Reps Economics Committee last month, ranking behind the weak income story:
“It’s largely the income story which doesn’t get talked about enough, because the media love talking about property prices, but year after year of weak income growth finally weighs on our spending plans,” Dr. Lowe told the committee.
The media and many many analysts have ignored the RBA’s views on falling house prices and their relative unimportance to the central bank at the moment.
This at a time when the RBA says it is finding it “challenging” to work out what is happening to household incomes and consumption. It is that uncertainty why the GDP number and the national accounts have markets on edge, more so than before previous releases, especially before the release of the September national accounts last December and its surprisingly weak contents.
