In terms of GDP growth, there is nothing in the recent data to suggest 3,25 per cent is on the cards. In two weeks, the March quarter GDP data will be released and they are likely to show annual growth around 2.75 per cent, which is much where is has been for the last few years. With retail sales also soft, building approvals trending lower, some government infrastructure projects coming to an end and net exports more neutral than positive over the next year, bottom line GDP is set to remain below 3 per cent right through to 2019.
The recent labour force data are showing the unemployment rate going up. It reached 5.6 per cent in April, to be higher than it was in May 2017. With job advertisements starting to track lower, it seems more likely the unemployment rate will hit 6 per cent, not the 5 per cent rate the RBA is banking on.
This weakness in employment will inevitably feed back into wages, which are also showing signs of slowing, not picking up. Over the last two quarters, annualised wages growth has been just 2.0 per cent, down from 2.2 per cent recorded in the June and September quarters 2017. Weak wages growth is hurting consumer spending and holding back bottom line growth. In terms of inflation, it remains well in check with sub-trend economic growth, rising unemployment and weak wages all feeding into a below-target inflation rate.
At one level, it is to be hoped the RBA is correct and the economy gains momentum, wages growth increase and eventually interest rates need to rise. That is because the economic news would be universally good.
The recent facts suggest this is a long shot.
If the economy keeps muddling along much as it has over the past year or so, the RBA will be on hold for a m=long time to come. If there is any downside at all from the current sluggish growth, rising unemployment, low inflation dynamics, the RBA will cut interest rates.
It wont happen soon, but the odds are slowly narrowing of a move before year end.