Bendigo Bank’s September Economic Update
After another weak report for economic growth, Australians are being urged to remain patient for rate cuts, with Bendigo Bank Chief Economist, David Robertson saying recent data still isn’t enough to allow the RBA to cut interest rates just yet.
In his September Economic Update, Mr Robertson’s long held view that Australian households won’t see a rate cut until 2025 remains steadfast.
“While the Bank of England and the Reserve Bank of New Zealand initiated their easing cycles last month, and a range of central banks will keep cutting rates over the next few months, Australia remains at the back of the queue,” Mr Robertson said today.
“Our headline CPI rate should keep falling steadily through the financial year thanks to electricity rebates and base effects, with the monthly indicator down to 3½% in July, but unfortunately for household, underlying inflation will be slower and more stubborn in its path back to target. As a result, despite another weak read for GDP in Q2 our economy only growing 0.2% for the quarter or 1.0% through the year, the RBA will need more evidence that core inflation is under control before it can join other central banks lowering official rates.
Mr Robertson also said the country remains in per capita recession.
“Recent GDP data was as forecast and was our 11th consecutive quarter of growth, but 1% is the slowest growth rate (outside the pandemic) since the ’91 recession, and as a result, we remain in a per capita recession,” Mr Robertson said.
“What that means is while population growth and government spending has kept the economy growing, household spending continues to decline, falling 0.2% with discretionary spending particularly weak.
Mr Robertson did however share some good news for Aussies, predicting the decline in economic growth, household consumption and disposable income should reverse over the coming months ahead.
“Fortunately, recent consumer data is likely to mark the low ebb for household consumption and disposable income, which is forecast to pick up steadily this quarter thanks to the stage 3 tax cuts and electricity rebates, and as inflation becomes less of a drag on incomes,” Mr Robertson said.
“As for when lower interest rates also add to household income, we continue to forecast rate cuts in 2025, with February or May the most likely months for relief, depending on quarterly inflation data - but there are two other variables to keep an eye on.
“One is the jobs market, which remains relatively strong despite the recent uptick in unemployment to 4.2%, but a sudden loosening in what have been tight labour markets would impact the Reserve Bank’s timeline for rate cuts. Secondly, any market dislocation on financial markets could influence the RBA.
“For now, we are simply seeing spikes in volatility on equity markets and to some extent in bond and FX markets, rather than any need for central bank intervention, and recent falls in stock markets have been from record highs. Nevertheless, the transition from tightening cycles to easing cycles (and the impact of tight monetary policy) remains challenging and uneven.
“Meanwhile residential property prices continue to trend higher especially in regions where supply of new dwellings is constrained, but this financial year should see much more moderate increases in property values, broadly matching inflation.
“In short, economic growth and household incomes are forecast to gradually recover from here, but rate cuts in Australia still look more likely to occur next year, ultimately taking us back to a more neutral setting about 1% below where we are today,” Mr Robertson concluded.
To watch David Robertson’s September Economic Update, please follow this link: September economic update.
