Aus­tralia econ­omy slows

De­spite tepid wage growth, in­vestors are push­ing out rate hike

The Star Malaysia - StarBiz - - Foreign News -

SYDNEY: Aus­tralia’s econ­omy slowed more than ex­pected last quar­ter as con­sumers re­acted to tepid wage growth by shut­ting their wal­lets, a dis­ap­point­ing out­come that sent the lo­cal dol­lar slid­ing as in­vestors pushed out the chance of any rate hike.

The news came as fears of a pos­si­ble slow­down in the US econ­omy and the Sino-US tar­iff slugged world shares and threat­ened fu­ture busi­ness in­vest­ment.

The gloomy re­port prompted Aus­tralian wealth man­ager AMP to call for a rate cut and forced HSBC to push back its rate rise pre­dic­tion from the sec­ond quar­ter of 2019 to the end of next year.

“Given the com­bi­na­tion of fall­ing house prices, tight­en­ing credit con­di­tions and con­strained growth which will keep wages growth weak and in­fla­tion be­low tar­get we are chang­ing our view,” AMP chief economist Shane Oliver said.

He had ear­lier pre­dicted sta­ble pol­icy out to mid-2020.

UBS econ­o­mists forecast cash rate unchanged at 1.50% through 2020 but added a rate cut can­not be ruled out if weak data con­tin­ues next year while Na­tional Aus­tralia Bank said it was ”re­assess­ing its view.”

Mar­ket pric­ing has changed too with fu­tures now im­ply­ing only a 20% prob­a­bil­ity of a hike by Christ­mas next year, down from 40% ear­lier this week.

Yes­ter­day’s gross do­mes­tic prod­uct (GDP) re­port showed Aus­tralia’s econ­omy ex­panded 0.3% in the third quar­ter, half of what econ­o­mists had ex­pected.

An­nual GDP rose by a still-re­spectable 2.8% to A$1.8 trillion (US$1.32 trillion), but con­founded ex­pec­ta­tions in a Reuters poll for a 3.3% in­crease.

The fig­ures im­ply growth in the year to June was 3%, rather than the orig­i­nally re­ported 3.4%.

The data will not be wel­comed by the Re­serve Bank of Aus­tralia (RBA), which pre­dicts growth of around 3½ this year and next.

“With weaker-than-ex­pected Q3 GDP num­bers, only mod­est mo­men­tum in... wage and price in­di­ca­tors, and the re­cent fall in oil prices, we are low­er­ing our GDP and (in­fla­tion) fore­casts and push­ing back the tim­ing of our rate hikes,” said HSBC’s Paul Blox­ham.

The dis­ap­point­ing set of num­bers sent the Aus­tralian dol­lar div­ing to a one-week trough of 0.7282 from a high of US$0.7355 touched ear­lier in the day. It was last down 0.6% at US$0.7297.

Aus­tralia’s econ­omy has gen­er­ally out­per­formed its rich world peers in re­cent years and is in its 28th year of growth with­out a re­ces­sion.

But while the RBA has main­tained its op­ti­mism, econ­o­mists are in­creas­ingly get­ting bear­ish on fu­ture mo­men­tum as Aus­tralia’s once-boom­ing hous­ing mar­ket hits the brakes, with po­ten­tially ad­verse ef­fects on con­sumer wealth and spend­ing.

A long stretch of unusu­ally slow wages growth has also throt­tled house­hold in­comes.

In­deed, a ma­jor drag in yes­ter­day’s re­port came from pri­vate con­sump­tion, which added a mere 0.2% to growth af­ter 0.7% in the June quar­ter.

The GDP re­port showed that while em­ploy­ers were tak­ing on a lot of new work­ers they weren’t pay­ing them much more, so av­er­age wages rose by just 0.2% in the quar­ter.

This soft un­der­belly of the econ­omy is a ma­jor worry for the RBA and is one rea­son it kept in­ter­est rates at record lows of 1.5% this week.

Adding to the case for cau­tion is the on­go­ing US trade dis­pute with China, Aus­tralia’s sin­gle most lu­cra­tive ex­port mar­ket.

Thus while the RBA is still tip­ping eco­nomic growth of 3.5% this year and next, it shows no in­cli­na­tion to tighten any­time soon. — Reuters

Given the com­bi­na­tion of fall­ing house prices, tight­en­ing credit con­di­tions and con­strained growth which will keep wages growth weak and in­fla­tion be­low tar­get we are chang­ing our view. Shane Oliver

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