From The AFR this afternoon comes news that Goldman Sachs’ chief Australian economist, Tim Toohey, still believes the RBA could cut interest rates as early as September in response to sluggish growth and weaker household spending:
Tim Toohey said wage and others pressures on household incomes, slower mining export growth and a long lag before new growth drivers kick in could force the RBA’s hand within months. The bank forecasts a 25 basis point cut in the cash rate to 2.25 per cent…
“It would be highly unusual to find a central bank that’s going to hike rates when nominal GDP growth is slowing,” he said.
“The growth versus inflation trade-off has moved increasingly towards the point where there could be additional policy easing,” he said…
Can’t say I disagree. The latest trade data suggests that net exports – the saviour of the March quarter GDP print – will be a huge drain on the June quarter result.
The trade figures for May revealed a whopping $5.8 billion reversal in Australia’s trade fortunes between the Q1 and Q2; although the extent to which the decline reflects falling volumes (affecting real GDP) or prices (affecting nominal GDP) is uncertain. Either way, it suggests a big drop in national income.
Added to this, the sharp post-Budget decline and subsequent lacklustre bounce in consumer sentiment is pointing to subdued household consumption and potentially weakening housing activity later in the year, just as mining investment continues its multi-year decline.
All of which supports the case for an additional rate cut sometime down the track.
