“The drought just isn’t in anyone’s numbers,” said Tim Toohey, chief economist for Goldman Sachs in Australia who noted past episodes cut growth by between a half and one percentage point. “A drought in a period where non-farm economic growth is already forecast by policy makers to be well below trend and inflation pressures contained is a sufficient reason to warrant additional monetary easing.”
Toohey forecasts Australia’s economy will expand by a below-average 2 percent in 2016 and says his estimate may be cut back once the impact of the drought becomes clear. “Growth of 1.75 percent is certainly possible, maybe a little bit below that,” he said. An annual expansion of less than 1.7 percent would be the weakest recorded since 1992.
…“If they’re going to wait until after the activity data really falls away, you’re going to find you’re in a position that you’ll be cutting by more,” he said.
The Southern Oscillation Index is going deep but it matters how enduring the drop is as well:
I can’t see the RBA cutting on the risk of a drought. We’ll need to see some pain.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
“The drought just isn’t in anyone’s numbers,” said Tim Toohey, chief economist for Goldman Sachs in Australia who noted past episodes cut growth by between a half and one percentage point. “A drought in a period where non-farm economic growth is already forecast by policy makers to be well below trend and inflation pressures contained is a sufficient reason to warrant additional monetary easing.”
