By Lucinda Jerogin, Associate Economist at CBA
- It was a relatively quiet week locally. Consumer sentiment lifted to a 3½ year high, providing further evidence the household consumption recovery is gaining momentum.
- The Economic Reform Roundtable was held in Canberra from Tuesday to Thursday.
- Offshore, geopolitical events dominated headlines. Russia-Ukraine ceasefire talks tookcentre stage, but no agreement was reached. In New Zealand, the RBNZ cut the OCR by 25bp to 3.0%.
- The week ahead will see the release of the Minutes from the August RBA Monetary Policy Board Meeting. In terms of the data flow, partials for the Q2 25 national accounts, including business investment and construction are due. Other local releases include the monthly CPI and private sector credit.
- Abroad, markets will be watching FOMC Chair Powell’s speech at Jackson Hole tonight. Next week is quieter with only US and Canadian GDP and US inflation data scheduled.
The data flow was light on this week in Australia. The WBC-MI consumer sentiment index jumped 5.7% to 98.5 in August. The latest improvement follows a third interest rate cut earlier this month and a more positive tone from the RBA board. Consumer sentiment now sits at a 3½ year high and there are growing signs the long run of consumer pessimism may be coming to an end.
We have been flagging our internal spending data has been tracking above the official ABS MHSI and a positive consumer sentiment release reinforces the notion that the consumer recovery may be gaining some momentum.
My colleagues Belinda Allen and Harry Ottley dived into the state of play of the Australian consumer this week, which you can read here. We have tweaked our household consumption forecasts for 2025 and 2026, now expecting a solid gain of 0.6%/qtr in Q2 25 and growth of 2.4%/yr in 2H 2026.
However, this has not altered our outlook for GDP, rather it has just shifted the composition of growth.
Also in local news this week, the Economic Reform Roundtable was held in Canberra from Tuesday to Thursday. There was generally consensus on cutting red tape and changes to the construction code as well as the introduction of road user charging.
Prior to the summit, Treasurer Jim Chalmers and Prime Minister Anthony Albanese had insisted that only the taxes Labor took to the election would be implemented this term. These included the top-up income tax cuts, EV road-user charge and extra 15% earnings tax on super balances above $3 million. But there was broad discussion on tax reform particularly around intergenerational fairness.
Offshore, geopolitical events dominated headlines in an otherwise quiet week. Markets watched Russia-Ukraine peace talks as President Trump and President Putin met in Alaska. However, ceasefire hopes were pared as progress stalled by weeks end.
In the US, the minutes of the FOMC’s July meeting showed a Committee that judged upside risks to inflation to be of greater concern than a slowdown in the labour market. However, the July meeting pre-dated recent weak non-farm payrolls data. Chair Powell may provide an update on his assessment of the balance of risks at his speech at Jackson Hole.
Money markets have pared pricing for a September cut to 70% from 85% at the start of the week. We view it as a finely balanced decision.
Across the Tazman, the RBNZ cut the Official Cash Rate (OCR) by 25bp to 3.0%, as was widely expected. However, the Board struck a more dovish tone. The vote was split 4-2 with the two opponents advocating for a 50bp cut. The RBNZ revised its economic forecasts lower, now expecting weaker growth, higher unemployment and stickier inflation. Our colleagues at ASB expect a further 50bp of cuts by year-end to stimulate the New Zealand economy.
Turning our attention to the week ahead and the data flow begins to ramp up. The July Monthly CPI will garner the most attention. We expect annual headline inflation to rise to 2.0%/yr and annual trimmed mean to hold steady at 2.1%/yr. This remains at the bottom of the RBA’s target band.
Partials for the Q2 25 national accounts (due 03/09) will also begin to roll in. First is construction work done on Wednesday. The volume of work had been steadily rising but was flat last quarter. In Q225, we have a 0.5%/qtr rise pencilled in and expect a continued lift in residential construction but a flat result for engineering work as we reach the broad peak of the public investment pipeline.
Capex data is due on Thursday. We expect actual capex to rise by 0.3% in the quarter. At this early stage we see a 3.4% nominal rise in the 2025-26 financial year, which would put the third estimate at ~$175bn based on 5-year realisation ratios.
Abroad, markets will be watching geopolitical events as the data flow is lighter. US and Canadian GDP and US inflation data are scheduled.
