RBA: Another disappointing GDP report supports further easing – RBC


Soft economic data suggest the Reserve Bank of Australia won’t wait too long before acting on its easing bias according to analysts at RBC. They expect a rate cut in November. 

Key Quotes:

“Australia’s economy expanded by 0.5% for a second consecutive quarter in Q2, bringing the year-over-year growth rate down to 1.4%—the weakest pace since the global financial crisis. Activity was once again boosted by net exports, one of the more consistent sources of growth recently, while government spending also accounted for a good chunk of the increase. Other details were soft, with another modest increase in consumer spending and a further decline in residential and business investment resulting in a fourth consecutive quarterly decline in private domestic demand. These data justify the RBA’s rate cuts around the middle of the year— and our expectation that there is more easing to come.”

“While there is some mixed evidence of monetary policy traction in the housing data, consumer indicators continue to look soft. Even with fiscal stimulus set to lend a hand, we continue to think the RBA’s assumption of a return to trend-like growth by this time next year looks overly optimistic.”

“A soft domestic economy combined with rising global risks suggest further rate cuts in the near-term, with our forecast assuming the next move will be in November. However, there is a risk the RBA takes a bit more time to evaluate the impact of its earlier moves.” 

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