Weak growth drives rate cut speculation
THE failure of Australia’s non-mining sector to kick into gear has boosted the prospect of another interest rate cut and an even lower Australian dollar.
Momentum slowed to a crawl in the June quarter with Australia’s economy growing at a weaker-than-expected 0.2 per cent, down from 0.9 per cent in the previous three months. The figure undershot economists’ expectations for 0.4 per cent growth.
Growth for the year to June came in at 2 per cent, which was the weakest annual pace for four years.
But, on a positive note, Australia has now chalked up its 24th consecutive year without a recession. Queensland’s economy contracted 0.8 per cent in the June quarter, based on state final demand plus net exports.
AMP Capital chief economist Shane Oliver said the quarterly performance might have been worse were it not for a surge in government spending. He tipped growth to bounce back to 0.5 per cent in the September quarter.
“What is concerning is that the outlook for non-mining investment remains weak,” Dr Oliver said. “Ongoing subpar growth is likely to drive the RBA to cut rates again and the Australian dollar is on its way to around US60¢.” Macquarie senior economist James McIntyre expects the RBA to cut rates in November. “The world is giving us a pay cut and it means the amount of income the economy is getting is declining,” he said.
But NAB chief economist Alan Oster said improving retail sales figures would drive growth into 2016, meaning rates could remain on hold.
Ai Group CEO Innes Willox said the GDP figures showed conditions remained tough for many businesses. But he said the lower Australian dollar, which briefly dipped to US69.82¢ yesterday, was encouraging. “Domestic industries, such as manufacturing, education, tourism and agriculture, will find it easier to increase revenue with a lower dollar,” Mr Willox said.
But Craig Walters, coowner of boutique Gold Coast manufacturer Jackaroo Vintage Retro Caravans, said the lower dollar was not always a godsend. “A lot of people will probably be a bit tighter with their money now because of the decline in our dollar. I haven’t seen much of a change, but we’ll know in the next couple of months.’’