Iron, coal ex­ports jump to lift growth

The Australian - - FRONT PAGE - PA­TRICK COM­MINS ECO­NOM­ICS COR­RE­SPON­DENT

Boom­ing iron ore and coal ex­ports have raised hopes the na­tional ac­counts will show im­proved growth, eas­ing pres­sure on Josh Fry­den­berg for an eco­nomic stim­u­lus.

The Re­serve Bank on Tues­day held rates steady at 0.75 per cent, as new data strength­ened fore­casts that GDP fig­ures, to be re­leased on Wed­nes­day, would show the econ­omy achiev­ing the RBA’s pre­dicted “gen­tle turn­ing point” for the Septem­ber quar­ter.

Econ­o­mists pre­dict that GDP ex­panded by 0.5-0.6 per cent over the three months to Septem­ber. If re­alised, an­nual growth would climb to 1.7 per cent.

Boom­ing iron ore and coal ex­ports have raised hopes the na­tional ac­counts will show im­proved growth, eas­ing pres­sure on Josh Fry­den­berg for an eco­nomic stim­u­lus.

The Re­serve Bank on Tues­day held rates steady at 0.75 per cent, hours af­ter bumper trade and govern­ment spend­ing data strength­ened fore­casts that the GDP fig­ures, to be re­leased on Wed­nes­day, would show the econ­omy achiev­ing the RBA’s pre­dicted “gen­tle turn­ing point” for the Septem­ber quar­ter.

The Trea­surer has in­di­cated the Septem­ber num­bers, should they be poor, could lead the govern­ment to re­con­sider its eco­nomic poli­cies in the up­com­ing mid-year eco­nomic out­look, in­clud­ing the po­ten­tial of bring­ing for­ward leg­is­lated tax cuts.

But the re­lease of of­fi­cial quar­terly ex­port and public ex­pen­di­ture num­bers on Tues­day sup­ported econ­o­mists’ ex­pec­ta­tions that GDP ex­panded by 0.5-0.6 per cent over the three months to Septem­ber.

If re­alised, an­nual growth would climb to 1.7 per cent, up from 1.4 per cent over the year to June — which was the weak­est pace in a decade — and lend sup­port to the govern­ment’s de­ter­mi­na­tion to pro­vide a “pru­dent” amount of fis­cal sup­port while main­tain­ing its com­mit­ment to a bud­get sur­plus.

The Aus­tralian Bureau of Sta­tis­tics data re­vealed that surg­ing ex­ports, es­pe­cially in iron ore and coal, drove a much larger than ex­pected $7.9bn cur­rent ac­count sur­plus in the Septem­ber quar­ter.

“We haven’t seen two quar­terly sur­pluses in a row since the early 1970s,” CBA se­nior economist Kristina Clifton said, warn­ing, how­ever, that “the sur­plus sit­u­a­tion is likely to be tem­po­rary”. “High com­mod­ity prices have played a big part in the sur­plus story and they are now re­treat­ing.”

The ABS fig­ures also showed stronger than ex­pected govern­ment spend­ing through the three months.

Rate cuts in June, July and Oc­to­ber have reignited house prices, es­pe­cially in Mel­bourne and Syd­ney, but have so far done little to in­spire a pick-up in spend­ing as heav­ily in­debted house­holds have cho­sen to use lower in­ter­est costs to pay down debt.

Econ­o­mists are ex­pect­ing the RBA to cut rates again when it next meets in Fe­bru­ary.

Pes­simists have pointed to the first an­nual fall in re­tail sales vol­umes since the early 1990s re­ces­sion over the year to Septem­ber. A sharp and un­ex­pected drop in res­i­den­tial build­ing ap­provals in Oc­to­ber has also cast doubts over the flow through from cheaper money to hous­ing ac­tiv­ity.

Amid de­bate about the ef­fec­tive­ness of mon­e­tary pol­icy, Re­serve Bank gov­er­nor Philip Lowe used his state­ment ac­com­pa­ny­ing the de­ci­sion to keep rates on hold to urge pa­tience. He em­pha­sised the “long and vari­able lags” be­tween pol­icy ac­tion and its ef­fects on con­struc­tion and growth.

The RBA tends to only tinker with the state­ment on a mon­thto-month ba­sis, and econ­o­mists fo­cus on changes in the word­ing to glean an in­sight into the bank’s pol­icy plans.

An­a­lysts said it was no­table that, on Tues­day, Dr Lowe chose to enu­mer­ate the ways in which eas­ier pol­icy was al­ready mak­ing a dif­fer­ence.

“The lower cash rate has put down­ward pres­sure on the ex­change rate, which is sup­port­ing ac­tiv­ity across a range of in­dus­tries,” he said. “It has also boosted as­set prices, which in time should lead to in­creased spend­ing, in­clud­ing on res­i­den­tial con­struc­tion. Lower mort­gage rates are also boost­ing ag­gre­gate house­hold dis­pos­able in­come, which, in time, will boost house­hold spend­ing.

“Given these ef­fects of lower in­ter­est rates and the long and vari­able lags in the trans­mis­sion of mon­e­tary pol­icy, the board de­cided to hold the cash rate steady.”

Round­ing out the marginally more up­beat com­men­tary, Dr Lowe pointed to a re­cent “less­en­ing” in global risks, most likely a ref­er­ence to hopes of a de­tente in the US-China trade war.

“The board chose to spread some Christ­mas cheer with a slightly more pos­i­tive em­pha­sis on the eco­nomic out­look for 2020,” Citi economist Josh Wil­liamson said.

The RBA re­peated that it would “con­tinue to mon­i­tor de­vel­op­ments, in­clud­ing in the labour mar­ket” — a ref­er­ence to its be­lief that the un­em­ploy­ment rate needs to fall from 5.3 per cent to at least 4.5 per cent be­fore wage pres­sures emerge.

A lift in weak wage growth is re­quired to drive in­fla­tion higher af­ter nearly four years be­low the bot­tom of the bank’s 2-3 per cent tar­get band.

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