Daily Commentary BY THE CURVE TEAM –

Weak Housing Market Data Adds to Uncertainty About Outlook

1st of February, 2019

Over the past 24 hours, a lot has happened locally with recent data casting further uncertainty about the monetary policy outlook. Meanwhile, fears of a global slowdown continue to grow.

In Australia, private sector credit continues to slow with growth slowing from 0.3% in November to 0.2% over December. This brings the annual rate down to 4.3% in 2018 from 4.8% in 2017.

Important for monetary policy, increase in housing credit fell materially from 6.3% in 2017 to 4.7% in 2018. The weak figure was driven by 3-year lows in owner-occupier lending and record lows in investor lending.

The fall in housing credit and continued decline in housing prices are a growing cause of concern. After falls accelerate in December, this morning’s housing market update for January from Core Logic showed prices fell heavily again last month.

The RBA so far has appeared to be at ease with the pullback in the housing market, because we are yet to see a material flow through to consumption in the official data. However, if recent trends continues, consumption may come under further pressure from a negative wealth effect as house price falls continue.

Offshore, widespread expectations of a global slowdown continue to grow. Italy is now technically in a recession with 2 quarters of negative GDP growth and Canada’s GDP fell 0.1% last month.

Europe looks to be in particular trouble with German retail sales falling 4.3% over the month to be down 2.1% for the year. It has seen increased concern from Bundesbank president, Weidmann, who overnight stated that Germany’s growth is likely to be “well below” expected potential growth 1.5% this year. He also added that:

“For growth – and to a lesser extent also for inflation – downside risks prevail from today’s perspective”

It is becoming clearer that the European economy is under increasing pressure but we won’t know how bad it is until we see German GDP mid next month.

The focus now shifts to the US where the latest nonfarm payrolls report is out tonight.

Neyavan Suthaharan

Client Services Officer