Australia’s central bank highlighted an improved global picture for the small open economy...
(Bloomberg) -- Australia’s central bank highlighted an improved global picture for the small open economy, while seeing limited employment gains because any growth will be labor light.
In its quarterly update of forecasts released Friday, the Reserve Bank of Australia left inflation estimates broadly unchanged, while growth in the year to June 2017 was cut by 1 percentage point due to a “base effect” from a third-quarter contraction. Liquefied natural gas exports are predicted to add about half a percentage point to GDP growth in 2017 and 2018.
“Overall growth is not expected to be sufficient to generate much of a decline in the unemployment rate over the forecast period,” the RBA said in its Statement on Monetary Policy. The nation’s jobless rate was 5.8 percent in December.
An unexpected bounce in commodity prices from stronger growth in chief trading partner China and a better performance in developed nations has lifted Australia’s terms of trade by 15 percent since mid-2016. While that’s forecast to unwind, the levels are forecast to remain above the lows of a year ago.
Consumption Growth
As to Australian households, the central bank said the profile of consumption growth “has been revised a little lower” as it’s unlikely to run much ahead of income growth. “This implies that the saving ratio will be relatively stable, rather than continuing to decline, as previously assumed,” the central bank said.
This is unexpected as the RBA cut the benchmark interest rate to a record-low 1.5 percent in August and house prices in Sydney and Melbourne have surged, meaning cheap money and a wealth effect are failing to spur consumers.
On the property market, the central bank noted the unexpected decline in dwelling investment in the third quarter was a reflection of bad weather, while the large amount of work in the pipeline suggests dwelling investment will remain high for the next year or so.
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In its quarterly update of forecasts released Friday, the Reserve Bank of Australia left inflation estimates broadly unchanged, while growth in the year to June 2017 was cut by 1 percentage point due to a “base effect” from a third-quarter contraction. Liquefied natural gas exports are predicted to add about half a percentage point to GDP growth in 2017 and 2018.
“Overall growth is not expected to be sufficient to generate much of a decline in the unemployment rate over the forecast period,” the RBA said in its Statement on Monetary Policy. The nation’s jobless rate was 5.8 percent in December.
An unexpected bounce in commodity prices from stronger growth in chief trading partner China and a better performance in developed nations has lifted Australia’s terms of trade by 15 percent since mid-2016. While that’s forecast to unwind, the levels are forecast to remain above the lows of a year ago.
Consumption Growth
As to Australian households, the central bank said the profile of consumption growth “has been revised a little lower” as it’s unlikely to run much ahead of income growth. “This implies that the saving ratio will be relatively stable, rather than continuing to decline, as previously assumed,” the central bank said.
This is unexpected as the RBA cut the benchmark interest rate to a record-low 1.5 percent in August and house prices in Sydney and Melbourne have surged, meaning cheap money and a wealth effect are failing to spur consumers.
On the property market, the central bank noted the unexpected decline in dwelling investment in the third quarter was a reflection of bad weather, while the large amount of work in the pipeline suggests dwelling investment will remain high for the next year or so.
Brokers on Banks: have your sayMPA's Brokers on Banks survey is open now and needs your help! For 14 years this survey has enabled you to score all of the banks on their performance, and give your views on key issues such as ASIC, channel conflict and commission. Take 5 minutes now to keep the banks honest, with the chance to win a pair of Bose QuietComfort® 25 Acoustic Noise Cancelling® headphones (RRP $399).
Closes 17th February - don't miss out!
