The Reserve Bank’s cautious belief that the economy is travelling better than many expect has won a big name supporter from the economics team from the National Australia Bank.
The RBA’s view came in the post-meeting statement after Tuesday’s decision to leave the cash rate steady at 2%, and governor, Glenn Stevens repeated the view in a speech in Melbourne yesterday.
“We are probably roughly halfway through the decline in resources sector capital spending now; the headwinds from that source are about as intense now as they are likely to get,” Mr Stephens said.
"We are still growing. It would be good if the growth was a bit stronger, but nonetheless over the past year the non-mining side of the economy has generated respectable growth in employment. The ‘rebalancing’ is occurring. It isn’t as seamless as it would be in an ideal world, but we don’t live in such a world."
After the building approvals, retail sales and trade data (all for September) this week, and another strong month for car sales in October (up 3.4% to more than 94,000 vehicles and heading for a near record year), its clear the chances of a rate cut are receding quickly.
And yet there are still a group of economists and analysts (not to mention some media economic writers) who reckon the economy will need another rate cut – but not the NAB.
In a statement ahead of the monthly surveys of business confidence and conditions to be released next Tuesday, the bank lifted its 2015-16 growth rate to 2.6% from 2.4% and trimmed its 2017 rate to 3% from 3.0%.
"Overall, NAB Economics remain of the view that the recovery in the non-mining sector is slowly becoming more well entrenched. The RBA also appears cautiously optimistic on this front, pointing to above-average business conditions, growth in services sectors and “respectable growth in employment”.
"The change to our 2015/16 forecast largely reflects the incorporation of a more volatile quarterly profile – including a relatively strong bounceback in Q3 following a surprisingly weak Q2 due to temporary factors. This may also lead to some upward revision to the RBA’s forecasts for the year to June 16 in (today’s) Statement on Monetary Policy.
"It is also possible that the RBA will review its high GDP forecast of 3–4½ y/y for Dec-17, in light of Governor Glenn Stevens’ stated lower assumption for potential growth of around 2.8%.
“The weak Q3 inflation outcome has also reduced our near-term year on year inflation forecasts due to base effects, and we anticipate a similar small downward revision to the RBA’s forecasts,” the bank said yesterday.
