Via The Australian:
Weak first-quarter GDP number have pushed ANZ to lower its Australian growth outlook for 2017 and 2018, with the bank now seeing a “one-in-four-chance” of another RBA rate cut and the potential for Quantitative Easing (QE).
“We think the first cab off the rank will be another rate cut, but given how close we are to the 1 per cent ‘floor’ the RBA has mentioned on occasion we think any further rate cuts will inevitably bring forward the discussion of potential RBA QE,” ANZ head of Australian economics David Plank said.
“We don’t see any bounce in second quarter GDP, with another gain of just 0.3 per cent quarter-on-quarter our pick. From there we expect growth to lift somewhat to take the result for 2017 as a whole to 1.8 per cent. This lifts to 2.7 per cent in 2018, with the risks tilted to the downside.”
The revised ANZ outlook significantly undershoots the Reserve Bank’s forecasts of between 2.5-3.5 per cent for year ended 2017 and between 2.75-3.75 per cent for 2018.
“This continued low growth/low inflation environment presents a significant policy challenge for the RBA and Government given the starting point of a low cash rate, fiscal deficits and high household debt,” Mr Plank said.
“The challenge is compounded by the fact our numbers imply even larger fiscal deficits than the official forecasts, with consequent risk of a downgrade to the Commonwealth’s AAA credit rating.”
That growth seems reasonable for Q2 and would lower annual growth to 1.3%, virtual stall speed. The outlook is much worse than 2.7% for FY18 given:
- the terms of trade crash;
- car industry shutters;
- capex keeps falling;
- gas shock worsens;
- dwelling construction rolls;
- house prices stall, and
- immigration floods the labour market.
So, if 1% is the floor then that’s where we’re going.
I’ve never considered Australian QE a realistic option given we’re externally funded and small. Nobody else like that has done it. Not even Canada, and its external debt is small by comparison. In such a scenario we would probably see mortgage rates rise (yes rise) as foreign capital fled and funding costs for the banks were re-priced.
But who knows? If we leave the 1% cash rate in place is it possible? One thing is certain, the Australian dollar will be pole-axed.
That’s why we’re starting the MB Fund with 70% offshore equities to help you profit from a difficult environment. It launches July 1. Those pre-registered will be invited in a little earlier. Register your interest today (if you have not already):
