– MAY 2019 INSIGHTS BY THE CURVE TEAM –
- The RBA left the cash rate on hold again in May making 33 straight months the cash rate has been at 1.50%.
- Ongoing deterioration in the data, in particular the latest growth and inflation data, has seen the RBA downgrade their outlook.
- One of the key technical assumptions underpinning the RBA’s forecasts suggests a change in monetary policy is coming.
- As a result, the RBA has signalled lower rates are coming and it is now a matter of when, not if, it cuts the cash rate.
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.
- Inflation came in well below expectations in Q1 with headline CPI flat for the quarter which saw the annual rate fall from 1.8% to 1.3%. The RBA has moved to using the trimmed mean as their preferred measure of core inflation and it increased by 0.3% for the quarter with the annual rate slipping from 1.8% to 1.6%
- The employment data saw total employment growth bounce back in March with a 25,700 increase with a skew towards full time employment growth. The unemployment rate edged back up to 5% after another uptick in the participation rate.
- The ANZ job ads continue to point to a slowdown in employment growth after edging lower again in April. The next update in the ABS’s job vacancies series will give us a better indication of where employment growth is heading.
- Business confidence remained soft in April with the index still hovering around while business conditions softened once again. However the employment index was the big concern, collapsing from 6 to -1 and is a warning sign for the RBA and their reliance on the employment market.
- Consumer confidence continues to gyrate around the inflection point that separates pessimists and optimists. After a big fall in March, consumer sentiment edged back up in April with the index now sitting at 100.7.
- After recovering in February, Retail sales finished the quarter ok with a 0.3% increase in March. The quarterly sales data ex-inflation were a little troubling, posting a 0.1% fall, pointing to lower sales volumes over the first quarter of the year. This doesn’t bode well for the consumption component of GDP.
- Growth in housing finance continues to slow across the board. In March, the slowdown in owner occupied lending actually outpaced the decline in investor lending, falling 3.4% over the month, while investor lending was down 2.7%.
- Australia’s trade surplus remained near its all time high in March as rising commodity prices continue to support export receipts. While the bumper trade balance is great for national income and the budget bottom line, it doesn’t add to GDP which focuses on volumes.
- The surge in Building approvals in February was subsequently unwound in March as was widely expected. Total approvals were down 15.5% in March after rising 19.1% the prior month. The volatility continued to be driven by units rather than detached housing approvals.