Bloxo: Rate cuts are done

From Bloxo:

Australia’s economy has done well, considering it has had to absorb a significant negative shock from the end of the mining boom. Over the past few years, commodity prices have fallen by 60% and mining investment has declined from around 8% to 3.5% of GDP. Historically, much smaller falls have typically caused recessions. But, as last week’s GDP figures clearly illustrated, Australia’s ‘R-word’ has been rebalancing not recession. Although business investment was a -1.6ppt drag on growth, overall GDP grew by a strong 3.3% y-o-y in Q2. The mining investment fall has been more than offset by a ramp up in resources exports and growth in services exports, housing construction and household spending. Looking forward, the drag from mining investment and falling commodity prices should now fade. This is expected to mean continued solid overall GDP growth, despite the housing construction boom nearing its end. We see the RBA on hold in coming quarters.

The more downbeat economic observers have, in recent years, described the economy as falling off the ‘mining investment cliff’ and said that Australia would have an ‘income recession’ as a result of the fall in commodity prices. The end of the mining boom has, indeed, been a big negative shock to absorb.