MNI ANALYSIS: No GDP Downgrade But Trade War Risk To RBA Fcast

--Discussion on Trade War Likely in RBA Board Minutes

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of Australia expects fourth quarter GDP to

be a touch lower than its current forecast but that doesn't necessarily mean a

downgrade in the 2018 forecast and neither does the improved view on wage growth

in the cash rate statement mean an upgrade.

     In short, this means there hasn't been any significant change in the RBA's

view on growth and inflation in March, compared with February. The RBA left the

cash rate unchanged at 1.5% at the board meeting Tuesday.

     But what could have changed is the view on uncertainties to the forecast,

which the RBA doesn't include in the cash rate statement but is mentioned in the

more detailed meeting minutes, published after two weeks.

     One such uncertainty that was likely discussed is the worry of a global

trade war that started after U.S. President Donald Trump announced a planned 25%

tariff on steel and 10% tariff on aluminium, and triggered retaliatory talk of

tariffs on U.S. products from other countries.

     Any threat to open markets is a key downside risk for the Australian

economy -- a point that RBA Governor Philip Lowe has made on numerous occasions

in the past. Reports that Australia might be excluded from U.S. import tariffs

doesn't reduce that risk.

     Lowe's latest comments on this issue came in Parliamentary testimony last

month, when he said that openness is key to Australia's economic success.

"That's been the case in the past, and it remains the case in the future. That

has a number of elements (importance of open trade) and Australia has more at

risk here than many other countries from a decline in open markets and an

increase in protectionism."

     "We benefit from foreign capital from the rest of the world, so we've got

to be an attractive place for foreign capital, and people as well. It's been

fundamental to our success to date, and I believe it remains fundamental to our

success in the future," he said.

     --WAGE GROWTH TROUGHED

     In the cash rate statement the RBA slightly changed its language on growth,

saying its forecast is for the economy to grow faster in 2018 than it did in

2017. That change isn't a suggestion of a downgrade in 2018 growth forecast yet,

though the RBA acknowledges Q4 GDP might be a little lower than their forecast.

     The Q4 GDP data is due Wednesday and while MNI survey median forecast

remains for 0.5% q/q growth and 2.5% y/y, the risk is for a lower outcome of

0.4% q/q and 2.4% y/y.

     The RBA's view on wage growth also doesn't mark a shift from last month. In

the statement, the RBA said "wage growth appears to have troughed" but this was

in line with its expectation and confirmed by Q4 wage price index data.

     More important to the outlook is that wage growth is expected to remain low

and rise only gradually because of the impact of enterprise agreements that had

much lower wage increases build into them than the ones they replace. The RBA

also expects average earnings -- another measure of wages published in the

national accounts -- to show a subdued outcome.

     --CONTINUED CONSUMPTION RISK

     The key risk remains household consumption and the January retail sales

data published earlier Tuesday and discussed at the board meeting validates that

risk.

     Interestingly, the RBA is not yet concerned about the impact of s slowing

housing market on consumption, even though it noted the slowing in the two big

cities of Sydney and Melbourne. But that could change if the weakness in house

prices accelerates.

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

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