Daily Commentary BY THE CURVE TEAM –

Outlook For Growth Looks More Uncertain

21st of March, 2018

It was a fairly muted night for markets overnight as equity markets paired back yesterday’s losses led by a lift in energy stocks. However, looking back towards home and the minutes from the RBA meeting earlier this month reflected a slightly more uncertain tone.

As widely expected, there were no real surprises within the minutes from the March meeting of the RBA. That being said, similar to what we saw in Governor Phillip Lowe’s post-meeting statement, the outlook on growth looks a little cloudy.

Taking us back to Lowe’s statement, he noted “the Bank’s central forecast is for the Australian economy to grow faster in 2018 than it did in 2017.” This was a stark contrast to what we had heard since the February SoMP, where the RBA repeatedly noted that growth would pick up over 3%.

As we know, what subsequently occurred was that GDP came in softer than expected in the fourth quarter of last year.

The minutes reiterated this uncertainty, specifically stating “over 2018, GDP growth was expected to exceed potential growth.” It has been suggested by the RBA that potential growth has fallen over the past few years to around 2.75%, short of previous forecasts of growth to exceed 3.00%.

You couple this with the repeated notion of “gradual” in regards to the outlook of inflation and degree of slack in the labour market and it becomes more clear that the RBA’s outlook on the economy is looking more unsettled.

It is evident that while we are seeing certain areas of the economy performing, notably employment and business conditions, the issue of household indebtedness and a more hesitant consumer has put the RBA in a tough situation.

With little key pieces of data aside from Q1 inflation between now and the next Statement of Monetary Policy is released in May, we could see an adjustment to the RBA’s official growth forecasts.

Looking ahead and the highlight today will be the start of the FOMC meeting, where it is expected that rates will move upward. As well as this, labour market data is due out in the UK ahead of tomorrow’s meeting of the BoE. Markets will be watching intently.

Oliver Parsons

Client Relationship Manager