– MARCH 2019 INSIGHTS BY THE CURVE TEAM –
- The RBA left the cash rate on hold again in March making 31 straight months that the cash rate has been at 1.50%.
- Domestic data continues to disappoint with the latest national accounts confirming economic growth stalled in the second half of 2019.
- The risk are now firmly to the downside with pressure building on the RBA to act.
- Labour market outcomes remain the key to the monetary policy outlook and forward looking indicators are heading in the wrong direction.
Australian Economic Highlights
- Growth disappointed again in the fourth quarter with the economy only expanding by 0.2%. Annualised growth over the second half of 2018 was 1% compared to almost 4% in the first half of the year.
- CPI slightly exceeded expectations in Q4 with headline inflation rising 0.5% while core inflation rose 0.4%, in line with expectations. The annual rate of headline inflation inched further below the RBA’s target band to 1.8%, while the core annual rate stayed at 1.75%.
- The employment data continues to be the one bright spot in an economy that is otherwise struggling. Employment growth remains strong enough to keep the unemployment rate hovering around 5% despite the uptrend in the participation rate. Forward looking indicators are starting to point to a slowdown in employment growth ahead.
- The ANZ job ads suggests that jobs growth will slow down over the months ahead with a clear downtrend now in place. If the relationship between the ANZ jobs report and the unemployment rate holds, the unemployment rate will drift higher by the middle of the year.
- Business confidence eased again in February, falling from 4 to 2 and remains below its long run average while business conditions was also weaker, giving up last months gains as profitability and trading deteriorated. The employment index remains solid at 5, staying above long run averages.
- Consumer confidence rebounded in February, lifted by the prospect of rate cuts after the RBA shifted to a move balanced outlook. The index now sits at 103.8 meaning optimists slightly outweigh pessimists.
- Retail sales failed to bounce back from their 0.4% decline in December, registering a small 0.1% increase in January. Discretionary spending remains weak and the uptick in the savings rate from the GDP report suggest the wealth effect of falling house prices is impacting overall consumption.
- The downward trend in housing finance remains firmly in place. Both owner occupier and investor loans fell heavily in January. Further house price declines suggests new credit generation remains weak so far in 2019.
- Australia recorded its second largest trade surplus on record in January driven by a surge in exports values. Exports rose 5% over the month while imports also bounced back after falling heavily in December.
- After sharp falls in recent months, Building approvals posted a moderate increase in January. Building approvals are now down over 37% from their November 2017 peak and are around their long run average going back to the 1970’s.