Australia: Soft 2019 to be followed by a better 2020 - ANZ

According to analysts at ANZ, 2019 has started on a soft note for the Australian economy, with GDP growth of just 0.4% q/q in Q1, while the second quarter doesn’t look much better, with retail sales falling in April and business conditions soft.

Key Quotes

“We do, however, think the second half of the year will be stronger. Sizeable tax refunds and lower interest rates underpin this expectation, which is expected to continue into 2020 as the housing market stabilises and the global economy picks up.”

“This turnaround won’t come in time to stop the unemployment rate moving higher. Given the RBA’s conclusion that the economy is a long-way short of full employment, this move will ensure further policy easing.”

“We have the cash rate falling to 0.75% by the end of 2019, with explicit forward guidance in the early part of 2020 seen as the next step. At this stage we don’t think the RBA will resort to quantitative easing, though this will be needed if the economy does not turn around as expected.”

“While it is very easy to focus on the downside risks to the outlook, there are risks to the upside. In particular, we will be watching to see whether housing turns faster than we expect. This seems unlikely with tight credit conditions, but we can’t rule it out given the historical role that interest rates have played. A quick turn would pose a considerable policy challenge.”