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Economists sceptical of RBA’s ‘gentle turning point’
Despite the RBA suggesting that the Australian economy has reached a “gentle turning point”, economists are sceptical about an optimistic forecast.
Economists sceptical of RBA’s ‘gentle turning point’
Despite the RBA suggesting that the Australian economy has reached a “gentle turning point”, economists are sceptical about an optimistic forecast.
According to AMP senior economist Diana Mousina, the Australian economy is slowing to its slowest pace in 10 years, with private sector spending collapsing.
Earlier this year, RBA governor Philip Lowe noted, “Domestically, the board today discussed how the Australian economy appears to have reached a gentle turning point. The economy has been through a soft patch recently, but we are expecting a return to around trend growth over the next year.”
However, Ms Mousina disagrees, suggesting the weak consumer spending data will continue to be a drain on Australia’s economic growth.
“Consumer spending is a vital component to the growth outlook, accounting for 60 per cent of GDP. Household spending is growing at just over 1 per cent annually, its lowest rate of growth since early 2009, and growth will remain low in 2020-21” Ms Mousina said.
The economist also noted that lower employment, wages and inflation are headwinds the Australian economy is facing.
“High labour underutilisation and low productivity growth mean that wages growth is likely to remain at just over 2 per cent annually for the next two years, which will also keep inflation low.
“Price discounting in the retail sector will also drag on inflation and underlying inflation is expected to increase slowly towards 2 per cent over the next three years, missing the RBA’s 2-3 per cent target band.”
“Price growth for essential services like health, education and transport (that are often provided by the public sector) will continue to run above the rate of inflation,” Ms Mousina explained.
Finally, Ms Mousina said more stimulus is needed to help support the Australian economy, noting that moving planned tax cuts forward could stimulate the economy.
Fidelity’s global cross-asset investment specialist, Anthony Doyle, agrees, saying: “If you think about fiscal conservative, it’s political ideology is defined by small government, a balanced budget and lower taxes.”
In order to fix the Australian economy in the longer term, Mr Doyle advocated for fixing the supply side of the economy, to improve the production capacity, and remove red tape through structural reforms.
“The difficult environment the Australian economy currently finds itself in, there’s no quick fix,” Mr Doyle said.
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