NAB today dropped its forecast for one final rate cut and now expects rate rises late next year. From the SMH blog:
The bank’s economists explain the review:
- Reasons are 1) the economy has been better than we expected and 2) the RBA have made it plain they are reluctant to cut what they already think is a super low cash rate.
- The economy still faces headwinds, including a tighter fiscal stance which we learn more about in tomorrow evening’s Commonwealth Budget.
- Even so, it will take something extraordinary for the RBA to cut again and we are not forecasting that. We now expect the cash rate to be unchanged at 2.5% until Q4 2015, when it will start to rise.
NAB also upgraded its GDP growth forecast modestly and now expects GDP growth at 2.9 per cent in 2013/14 (was 2.7 per cent) and 3.1 per cent in 2014/15 (was 3.0 per cent).
“Most of this improvement reflects a stronger net exports contribution – particularly in Q1,” NAB says. “Even so, the growth upgrade and stronger labour market in recent months has allowed us to revise down the expected peak in the unemployment rate to 6.25 per cent in late 2014 (previously 6.5 per cent).”
That only leaves Saul Eslake, Tim Toohey, Steven Walters and myself expecting another rate cut (I think next year). I remain quite unswayed and expect:
- house prices to keep running at a diminished rate and then roll over in a year or so
- the Budget to hurt modestly
- consumer spending to erode all year and the jobs market to follow it
- the capex cliff to steepen in the second half and even more next year
- the China adjustment to be more difficult than most expect
- the iron ore price to go lower and earlier than most expect
- the dollar to provide some relief
