RBA SoMP: 2019 growth forecast remained at 3 ¼ per cent - Westpac
|Bill Evans, Research Analyst at Westpac, notes that the Reserve Bank of Australia has released its November Statement on Monetary Policy and the forecast for growth in 2019 remained at 3 ¼ per cent.
Key Quotes
“Growth in 2018 has been revised up to 3 ½ per cent from 3 ¼ per cent, although that largely reflects a higher starting point given that the previous estimate of growth to June 2018 was lifted from 3 per cent to 3.4% actual.”
“The forecast for 2019, nevertheless, is significantly higher than Westpac’s forecast of 2.7%. This can largely be explained by an assessment by the RBA that there will be no marked reduction in residential construction activity in 2019 and limited reduction in 2020. Secondly, the assumption is that household consumption growth will be sustained at around the current 3 per cent pace over the forecast period.”
“There has also been an increase in the forecast for underlying inflation for the year to December 2019 from 2 per cent in the August SoMP to 2 ¼ per cent. With the recent September quarter inflation report confirming that underlying inflation is running at 1 ¾ per cent, this forecast lift of ½ per cent in underlying inflation looks to be optimistic.”
“As was indicated in the Governor’s Decision Statement, the forecast for the unemployment rate has been lowered. However, this appears to be a cautious ‘mark-to-market’ exercise.”
“Conclusion
On face value, the stronger growth and higher inflation forecasts might imply that the RBA is closer to raising rates than we have expected. That may well be the case from their perspective. But if the economy evolves as we expect with a slowdown in consumer spending, a contraction in residential investment, and softer confidence partly linked to global uncertainty, the RBA’s growth and inflation forecasts are unlikely to be achieved.
Of course, it will take some time for these developments to be apparent and based on the Governor’s comment “the Board does not see a strong case to adjust the cash rate in the near-term”, we have ample time for the outlook to evolve without a surprise policy adjustment based on these forecasts.
Westpac confirms its view that the cash rate will remain on hold through 2018, 2019 and 2020.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.