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--Slowdown In Q3 GDP Data Seen By RBA As Statistical Anomaly
By Lachlan Colquhoun
SYDNEY (MNI) - The Reserve Bank of Australia remains positive in its 2019
outlook for the domestic economy, despite unexpectedly weak signals from recent
economic data and downside risks overhanging the housing market, MNI
Although overestimating recent September quarter GDP data and seeing an
unexpected uptick in November's unemployment level, the RBA is sticking with its
policy stance, which is for a stronger local economy to gradually create the
conditions for a rise in official interest rates.
While recognising potential risks from a falling local housing market and a
possible credit squeeze from the major banks, the RBA is still anticipating a
soft landing for the housing market.
September GDP was an annualised 2.8% against the Bank's expectation, as
discussed at its Board meeting on December 4, for a figure above 3%, while
unemployment added 0.1% to 5.1% in November data released this week.
MNI is led to believe that the Bank does not view these results as pointers
to a faltering economic recovery, but sees statistical anomalies delivering
atypical data results. On GDP growth, for instance, factors such as the recent
changes to Government payments around childcare funding and a lag in new mining
investment are seen as having contributed to a flatter result.
In terms of the global outlook, the Bank is understood to have expected the
recent rate hike by the US Federal Reserve to the 2.25% to 2.5% range, seeing it
as an appropriate response to the buoyant US economy.
The RBA cut rates to a record low 1.5% in November 2016 and has maintained
them at that level as a driver for growth.
The expectation is that December quarter and 2019 growth will revert to 3%
The unemployment figure of 5.1%, meanwhile, is attributed to a higher
participation rate of 65.7% which meant the overall rate increased, despite the
creation of 37,000 new jobs in November.
More significant for the RBA is the fact that there are now 12.69 million
Australians employed, a national record, and the expectation is that this will
flow through to wages growth as the economy soaks up spare capacity.
Central to the RBA outlook is the view that higher wages will increase
consumer spending and push inflation from the current 1.9% to within the Bank's
target range of between 2 and 3%. The Board minutes noted that the wage price
index (WPI) increased by 0.6% in the September quarter to be 2.3% higher over
While recognising the downside risk in a weaker housing market, the RBA
does not believe that falling property prices in Sydney, where prices have
fallen 9% since their July 2017 peak, will create a national rout which would
lead to an undermining of consumer confidence and spending.
MNI understands the RBA view is still that the housing market needed
stabilisation after the boom period between 2015 and 2017, and that the current
downturn is a natural correction, with investor activity now in decline.
While maintaining its positive view, the Bank is watching the housing and
lending markets closely as the sector with the highest risk.
As RBA deputy governor Guy Debelle said at a public event earlier in
December, for house prices to be falling at a time of record low interest rates
is "uncharted territory" for the Australian economy.
--MNI London Bureau; tel: +44 203-586-2225; email: firstname.lastname@example.org
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