THE Reserve Bank now expects the Australian economy to grow by about 3.5 per cent on average this year and next.
It expects unemployment to fall to 4.75 per cent in 2020 and is more confident inflation will rise.
Our view is the RBA is too optimistic and growth will be constrained at about 2.75 per cent next year, because the downturn in housing will constrain growth with less building and the perceived loss of wealth weighing on spending. We believe house prices will have a top-tobottom fall of 20 per cent in Sydney and Melbourne.
So we think a rate rise is a long way off and a cut later next year can’t be ruled out.
The RBA’s “optimism” highlights although there are drags on growth, there are other things which will keep growth going, such as infrastructure spending, business investment, strong growth in exports and falling unemployment.
So a recession in Australia remains as far away as ever.