Australia: Weakness in private demand to continue, policy stimulus needed – NAB

Analysts at National Australia Bank have revised down their near term economic forecasts for the Australian economy reflecting the inclusion of the Q1 national accounts, but more importantly continuing weak consumer demand in Q2 as well as further weakness in the construction cycle.

Key Quotes

“It is interesting to note that by Q2 2019 year to growth will be as low as 1.3% y/y% - with little contribution from underlying private sector demand. Against that we have increased consumer demand in Q4 reflecting the timing of tax cuts and hopefully some benefits from lower interest rates. However the net effect has lowered through the year growth in 2019 to 2.0% (previously 2.3%) and in year average terms 1.7% (previously 2.0%).”

“Not surprisingly that produces a weaker labour market outcome for 2019 – with unemployment rising to around 5.3% by year’s end. There is some risk that should growth be this weak, unemployment could deteriorate further.”

“For 2020 and 2021 we have not fundamentally changed our forecasts – with through the year growth ranging between 2 and 2¼ percent. In year-average terms growth remains around 2.3% (for both years). That growth is below trend and hence unemployment deteriorates further – with unemployment reaching 5.5% in 2021.”

“On monetary policy, we are factoring in another near term cut – still in August but we would not discount July. Also we see the need for further monetary policy action in early 2020 – if not sooner. Thus, unlike the RBA, we do see the outlook as having deteriorated recently. However we do agree with their assessment that other areas of policy need to lend a hand – especially fiscal and structural policy.”