The worst may be over, says bank economist
Following another sluggish economic growth report, Australians are being advised to temper expectations for imminent rate cuts.
Bendigo Bank’s chief economist, David Robertson (pictured above), emphasised that the latest data remains insufficient to prompt the Reserve Bank of Australia (RBA) to lower interest rates in the near term. He reaffirmed his prediction that Australians will not see interest rate cuts until 2025.
“While the Bank of England and the Reserve Bank of New Zealand initiated their easing cycles last month, and a range of central banks will keep cutting rates over the next few months, Australia remains at the back of the queue,” Robertson said.
Australia’s headline consumer price index (CPI) fell to 3.5% in July, helped by government electricity rebates, but Robertson warned that core inflation is taking longer to decline. He pointed to second-quarter GDP growth of just 0.2%, bringing annual growth to 1%, the slowest outside the pandemic since the 1991 recession.
In Bendigo Bank’s September economic update, Robertson also noted that the country remains in a “per capita recession,” where population growth masks declining household spending. Discretionary spending is particularly weak, with household consumption falling by 0.2%, he added.
Meanwhile, residential property prices continue to rise, though more moderately, due to limited housing supply.
Despite these challenges, the bank economist expressed optimism that the worst may be over. He expects household consumption and disposable income to improve in the coming months, helped by tax cuts and easing inflationary pressures.
“As for when lower interest rates also add to household income, we continue to forecast rate cuts in 2025, with February or May the most likely months for relief, depending on quarterly inflation data – but there are two other variables to keep an eye on,” Robertson said.
“One is the jobs market, which remains relatively strong despite the recent uptick in unemployment to 4.2%, but a sudden loosening in what have been tight labour markets would impact the Reserve Bank’s timeline for rate cuts. Secondly, any market dislocation on financial markets could influence the RBA.”
For now, Robertson stressed Australia’s economy is facing volatility in equity, bond, and currency markets, but not enough to warrant central bank intervention.
“Economic growth and household incomes are forecast to gradually recover from here, but rate cuts in Australia still look more likely to occur next year, ultimately taking us back to a more neutral setting about 1% below where we are today,” he said.
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