RBA still upbeat

On Friday the RBA released their latest statement on monetary policy, compiling the opinions and forecasts of the nation’s central bankers. Despite negativity from some policy makers and commentators, both domestically and overseas, the bank remains somewhat upbeat on the future of the Australian economy.

They forecast GDP growth to remain at above trend levels in 2019, with the expectation of around 3 percent of growth over 2019, which is a lowering of their previous forecast, but still a strong number. They also forecast that inflation will remain above recent levels, with CPI expected to pick-up to 2 percent by late 2019.

Whilst the RBA remained somewhat optimistic in their statement, over the weekend the International Monetary Fund managing director spoke dourly of the global economy.

“The bottom-line — we see an economy that is growing more slowly than we had anticipated,” IMF managing director Christine Lagarde told the World Government Summit in Dubai.

She spoke of the forecast slowdown in global economic growth (the IMF dropped their forecasts from 3.7 to 3.5% global GDP growth this year), as well as the possible clouds that could trigger a global economic “storm”.

She highlighted “trade tensions and tariff escalations, financial tightening, uncertainty related to Brexit … and spill over impact and an accelerated slowdown of the Chinese economy”.

The RBA also referred to these global economic issues in their statement; as potential drags on the future growth forecasts. The RBA also commented on house prices, stating “There are also a number of indirect channels through which a decline in housing prices could affect the economy.” Going on to list potential negative outcomes of further house price falls.

On the positive side of things, the RBA stated a tight employment market (low unemployment) would lead to a pickup in wage growth, which would be a benefit for the domestic economy. They also stated that were oil prices to hold around current lows, they would support economic growth in Australia’s largest trading partners, who are predominantly net importers of oil. The RBA also stated that “business investment is expected to support growth” domestically.

There are still plenty of headwinds for the Australian market, but it appears that they are primarily related to global politics and foreign relations. Domestically, despite a cooling housing market, things seem to be ticking along reasonably well.