The economic picture hasn’t changed much in the few weeks I have been away on holidays.
Inflation is within the RBA target range. The labour market remains soft with the unemployment rate at 6 per cent and employment growth struggling to keep up with population growth. House price growth remains too strong. Mining investment is in free-fall. Consumer sentiment is dreadful while business confidence is OK, but lacking the oomph to underpin a lift in activity.
The RBA now seems to be happy to hold interest rates where they are for some time to come, especially with the Aussie dollar being smoked. The government, unfortunately, has abandoned economic policy reform with nothing on the economic agenda. The budget was a fizzer and the credit rating agencies are lining up to put Australia’s sovereign credit rating on negative watch.
Which agency will be the first to go?
Ahead, the important news will continue to be on business expectations for the economy, the extent to which the non-mining parts of the economy can lift and whether the quite favourable conditions on the global economy can filter through to a floor in commodity prices.
House prices, as always, will be fun to watch – are we witness the early stages of the downturn? Certainly outside Sydney and Melbourne prices have cooled and the approach from APRA and the bank approach to differential interest rates for investors versus owner-occupiers suggests prices will soon start to ease.
As always, fun times ahead. The Aussie dollar is now entering an overshoot and bond yields should continue to grind higher.
