MNI: RBA Lowe: Q4 GDP May Be Softer But Doesn't Change Outlook

By Sophia Rodrigues

     SYDNEY (MNI) - The fourth quarter GDP, due later Wednesday, may be softer

than what the Reserve Bank of Australia expected and it may be due to lower

exports but it doesn't change the overall growth outlook, Governor Philip Lowe

said.

     Lowe made the comments at the Q&A session following a speech at the AFR

Business Summit in Sydney on the topic, "The Changing Nature of Investment."

     He said the underlying drivers of stronger growth are still in play in

Australia -- consumption is picking up, investment is growing strongly and

employment is growing. So a slightly softer GDP number due to lower exports

doesn't change the outlook for the economy, he said.

     Lowe's comments are in line with MNI's own analysis published late Tuesday

that the RBA expects Q4 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.

     Australia's Q4 GDP is due to be published at 1130 hours Wednesday and MNI

median forecast is for 0.5% q/q and +2.5% y/y growth but the risk for a slightly

lower outcome.

     Lowe said it would be helpful to have a lower exchange rate that what it is

now, though the currency is not out of sync with fundamentals given high

commodity prices.

     Responding to a question on global trade tensions caused by the U.S.

President Donald Trump's planned 25% tariff on steel and 10% tariff on

aluminium, Lowe said it is a bad policy and highly regrettable.

     He repeated his previous view on this issue, saying that protectionism is

costly to everyone, including the country which implements it.

     "This could turn very badly and escalate if we see retaliation and

counter-retaliation," he said, adding, that the best thing to do is not to

retaliate.

     Earlier in the speech, Lowe appeared more convinced than he has been in the

recent past that the next move in interest rates in Australia will be up. He

said the RBA's assessment is that "the economy is moving in the right direction"

and interest rates are still quite low, so it is likely that the next move in

interest rates will be up, not down. 

     Last month Lowe's comments were a bit more conditional when he said that

the RBA expects to make further progress in reducing unemployment and having

inflation return to the midpoint of the target range and "If we do make that

progress, at some point it will be appropriate for interest rates in Australia

to also start moving up."

     Lowe mostly repeated what he previously said on monetary policy. He said

that the progress in reducing unemployment and having inflation return to target

is likely to be gradual. "With only gradual progress expected, the Board does

not see a strong case for a near-term adjustment of monetary policy. We will, of

course, keep that judgement under review at future meetings.:

     On inflation, Lowe said the consumer price index in Australia will average

between 2 and 3 per cent. And while some variation could be expected, over the

medium-term the average inflation rate will be "2 point something." He added

that the RBA pursues its inflation objective in a way that promotes sustainable

growth in the economy and pays close attention to financial stability risks.

     Lowe touched upon the corporate tax issue in the speech and in this

instance appeared a bit more supportive. He said, "Over recent times there has

also been quite a lot of discussion about the effect of tax on the investment

climate and international competitiveness. This is an important discussion to

have as Australia does need to remain an attractive place for global capital to

invest."

     Later at the Q&A, Lowe said it is hard to ignore developments elsewhere in

the world and Australia will need to "think about that seriously."

     He said if Australia responds -- and he'd understand why it would -- then

it needs to be done in the context of continued fiscal discipline.

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

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