MNI 5 Things: RBA Sees GDP Exceeding Potential Over 2018

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia released the minutes of the

March 6 board meeting Tuesday. Following are the five key observations we made:

     --The RBA didn't make any mention that Q4 GDP would likely be lower than

expected (GDP data was due a day after the board meeting) but tweaked the

wording of GDP outlook. The RBA said GDP growth was expected to exceed potential

growth over 2018. This compares with wording in the February minutes that GDP

was expected to average little above 3% over next two years. Despite the tweaks,

the RBA maintained the outlook that further progress on reducing unemployment

rate and bringing inflation closer to target was expected over the period ahead

but this process was likely to be gradual.

     --The overall tone of the minutes was more optimistic than the month

before, with the RBA noting that overall conditions in the global economy has

continued to improve. In particular, the RBA said some indicators suggested

conditions in early 2018 had been more positive in the manufacturing and

services sectors for a number of east Asian economies. The commentary on China

was more positive. And significantly the RBA said "there had been some signs of

inflationary pressures building" globally.

     --There was very limited discussion on global trade tensions though the RBA

pointed to the risk to Australia if trade protection increased. The RBA said

there has been little change in commodity prices in response to the announcement

of steel and aluminium tariffs in the U.S. and that "risks to the global

economy, and therefore the outlook for Australia would rise if other countries

also increased trade protection."

     --There was likely a lengthy discussion on drivers of non-mining business

investment and the key conclusion was that there some upside risks to the RBA's

forecasts for growth in non-mining business investment over the medium term.

     --On wage growth, the RBA mainly focused on trends across the states,

noting that wage growth had risen to almost 2.5% in Victoria, and in Queensland

and Western Australia, they rose from the lows recorded the year before but in

New South Wales they had been steady around 2%. Importantly, the RBA pointed to

wage growth pickup in industries with relatively high share of employees on

individual agreements. Overall, there was a tiny upgrade in the outlook for wage

growth. Previously, the RBA said "wage growth was yet to pick up" but now it

says there has not been a "definitive pick-up in wage growth." The RBA also said

"wages growth was expected to rise gradually" 

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

[TOPICS: MMLRB$,M$A$$$,M$L$$$,MT$$$$]