Implications: smaller than expected stimulus raises risk of early/more RBA cuts
Overall, as we flagged, the Budget improved modestly due to higher commodities & fiscal conservatism, with the surplus profile supporting the AAA. Household tax cuts & handouts were much smaller than expected; while infrastructure & public demand slow sharply. With credit tightening causing the largest housing downturn in history & a negative wealth effect, a significant share of (only modest) tax cuts will likely be saved or used to repay record debt. Hence, the Budget reinforces our already below consensus GDP outlook for a sharp slowing to 1.9% y/y in 2019. We still expect the RBA to shift to an explicit easing bias in May, before cutting rates by 25bp in both July & August; but the lack of material stimulus raises the risk of earlier & larger cuts.
Hello Josh Recessionberg.