From Tim Toohey and Andrew Boak:
Economic momentum disappoints into late 2014…
Economic momentum continues to struggle against the headwinds from ongoing terms of trade decline, weak income growth, fiscal consolidation, and declining business investment. The 4Q2014 National Accounts were a testament to this tension as domestic demand growth slowed to +0.4% (6- mth annl.) and nominal income decelerated to its weakest pace since 2009.… downside risks to our bearish growth numbers are significant
While there were some slightly more positive signs in terms of household consumption, the RBA’s recent growth downgrades affirm that the nonmining recovery is continuing to fall short of expectations. In our view, GDP growth will struggle to reach +2.0% yoy in 2015 and, against the backdrop of the recent further deterioration in sentiment surveys and capex intentions, we would not be surprised to see consensus expectations (+2.6% yoy) and those of the RBA (+2.25% yoy) lowered through 2015.A proactive precedent means that we lean slightly to an April cut
The RBA did not restart the easing cycle intending to deliver a solitary 25bp rate cut and we see little benefit in delaying further action until the 1Q2015 CPI report is at hand (22 April). The partial data on prices, including multidecade lows in wages growth and inflation expectations, suggest a weak inflation print is locked-in – yet there is still an opportunity for the RBA to get more “bang for its buck” with a “surprise” cut in April. This would also be consistent with the proactive approach favoured in February. To be clear, the RBA has not signaled a sense of urgency, the jury is still out on new macroprudential initiatives, and a reactive May move is clearly quite possible – but we still lean towards an April cut and note that probability of this scenario has increased over the past week as the dovish FOMC contributed to renewed strength in the AUD (with the TWI back up above the level seen just prior to February’s rate cut).
Fair enough. To be honest, I really have no idea on this one. More cuts are coming but when will depend upon the mood of the bubble managers.
