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Further RBA cuts ‘still likely’

By Katarina Taurian · March 03 2016
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Further RBA cuts ‘still likely’

Further RBA cuts ‘still likely’

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By Katarina Taurian · March 03 2016
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With economic growth likely to soften this year, one of Australia’s leading economists believes further cash rate cuts from the RBA could still be on the cards.

AMP Capital’s chief economist Shane Oliver noted the December quarter growth was stronger than expected at 0.6 per cent quarter on quarter, off the back of an uptick in both consumer and public spending.

However, the “drag on growth” from the unwind of mining investments is set to continue, Mr Oliver said, with the latest business investment plans from the ABS pointing to mining investment falling at the rate of approximately 35 per cent this financial year.

Mr Oliver believes this will knock around one percentage point off annual economic growth.

“More broadly, several other factors are likely to weigh on growth going forward, including: steep falls in commodity prices that continue to cut into national income growth; household reluctance to take on more debt; and subdued levels of confidence. And peaking building approvals point to a slowing contribution to growth from housing construction in 2016-17, at the same time that mining investment will be continuing to fall,” Mr Oliver said.

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“As a result of these considerations, economic growth is likely to slip back to around 2.5 per cent over the year ahead,” he added.

With this likely fall in growth, and inflation likely to remain low, Mr Oliver believes the Australian economy “will require further help”.

“As such, we continue to expect that the RBA will cut the cash rate again in the months ahead. However, with growth exceeding expectations last year and the job market holding up, well, it’s now a close call,” he concluded.

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