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Weekly Economic Commentary

Categories: General, Weather, Commodities

This week, the final week of the election campaign, sees two potentially significant economic events. On Tuesday, the Reserve Bank of Australia (RBA) will announce its decision on interest rates and, on Wednesday, we will see the release of GDP data for the June quarter. A shock result for either event may just sway a few wavering voters one way or the other.

That said, it looks very likely that the RBA announcement will be a non-event, with interest rates set to be left unchanged after last month’s rate cut. If there is a shock, it would be in the form of a rate cut which financial markets are currently pricing at only a 5% probability – with zero chance of a rate hike.

The RBA Governor will issue a press release as usual which will add some context to the decision, but I expect it to be very short as the general flow of news since the last rate cut has been neutral to slightly stronger and the statement is unlikely to figure at all in the election campaign.

What is less certain and therefore could be a lot more interesting for the politicians will be the GDP data out on Wednesday. Currently it looks like GDP will rise by just 0.5% in the June quarter after rising by 0.6% in both of the last two quarters to deliver annual GDP at just 2.4% - a growth rate about 0.75% below the long run trend.

Politically, the GDP news could hurt the Government, particularly if there is a downside surprise in the data. Even though the weaker growth would be delivered due to events outside the Government’s control, it won’t stop the Opposition from using the below trend growth rate to reinforce the perception that there is something structurally wrong with the economy. The Government will obviously therefore be hoping for some upside surprise in GDP and a 0.6% or higher result would be considered “good”.

Much more important than the short-term political jawboning from the result, the data will confirm that Australia will have had 22 years without a recession, something no other modern industrialised economy has achieved and, with historically low rates, this trend is likely to continue.

Source: www.ruralbank.com.au

 

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