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Will rates continue to fall?
Interest rates will remain lower for longer in Australia and globally as factors combine to produce near economic stagnation, investment managers have suggested.
Will rates continue to fall?
Interest rates will remain lower for longer in Australia and globally as factors combine to produce near economic stagnation, investment managers have suggested.
According to VanEck, central banks are likely to keep rates low as economic stagnation kicks in.
“We believe the RBA will cut interest rates to a historic low of 50 basis points by early next year. Several factors are combining to hold back economic activity, which will keep interest rates very low,” VanEck head of investments Russell Chesler said.
In addition, Mr Chesler believes structural factors in Australia will keep interest rates low.
“While population growth is healthier, at around 1.6 per cent, helped on by immigration, household debt is very high, having escalated dramatically since the 1990s.
“Both household debt-to-income and house prices-to-income ratios are very high. Other than Switzerland, Australia has the highest level of household debt as a percentage of gross domestic product (GDP) in the developed world,” Mr Chesler explained.
VanEck noted that we are also likely to see low interest rates persist in Australia, given household consumption will remain subdued. Household income per capita is not increasing and wages growth remains very low, reflecting the high level of underemployment. Australia’s underemployment rate is sitting at almost 8.5 per cent.
“This indicates that a relatively large proportion of the working population is working part-time,” Mr Chester said.
Worldwide debt levels are around 220 per cent of GDP. The investment manager suggested high debt suppresses economic activity worldwide, having an impact on Australia.
Mr Chester also suggested demographic factors are contributing to low levels of economic growth. The increased size of the developed market’s working-age population has slowed considerably in the last 20 years and is expected to contract around 2030, which will weigh heavily on consumption.
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