Steady as she goes.
That’s pretty much the message in the RBA Board Meeting Minutes released today, growth and inflation figures essentially on trend and inline with Bank expectations and forecasts.
– Underlining and headline inflation on trend, increasing to slightly under 2% (NOTE: short to medium term reported CPI figures likely to come in below trend due to change of weighting of sectors to reflect changes in consumer spending behaviour.)
– The forecast for Australia’s terms of trade had been revised up a little since May
– Bank forecasts unchanged, 3% GDP growth for 2018-19 and inflation at just under 2% edging higher over next 2 years
– Increase in consumption growth (consumer spending)
– Dwelling investment was expected to recover from the weakness in the March quarter
– mining sector was expected to be supported in the June quarter by stronger resource export volumes
– many of the conditions that might typically be associated with stronger non-mining business growth in investment were in place
– increase in the level of non-residential building approvals had also signalled a more positive outlook for private non-residential construction, although the pipeline of work to be done was at low levels
– public infrastructure activity had increased over the previous few years, to be at its highest share of GDP since the mid 1980s
– unemployment remains at 5.6% , potentially edging down to 5.5% in forecast period, with under employment edging lower in recent months.
– improvement in global economic conditions had continued, particularly in China and the euro area
– Growth in GDP in China had been a little stronger than expected in the June quarter, with Chinese economic performance broadly effecting the Australian economy
– members noted that, if approvals remained at current levels, residential construction activity could begin to decline.
– a degree of spare capacity in the labour market expected to continue
– expectations of ongoing low wage growth could weigh on consumption growth.
– Members noted that the outlook for the Chinese economy remained a significant source of uncertainty, with growth in China expected to ease in 2018 and 2019 because of structural factors such as a declining working-age population, as well as policies to address financial risks
– a further appreciation of the exchange rate would be expected to result in a slower pick-up in inflation and economic activity than currently forecast
– high household debt in a low-inflation environment
All in all, there would appear to be more upside than downside for the economy, however, at least three of the negatives could potentially pose significant risk to the continued improvement in the economy. Those risks are, externally, the extent of the expected easing in the growth of the Chinese economy, ” Members noted that the outlook for the Chinese economy remained a significant source of uncertainty”. Secondly, “ongoing low wage growth and the high level of debt on household balance sheets raised the possibility that consumption growth could be lower than forecast.” Thirdly, the “.. number of new residential building approvals had stepped down since 2016 and members noted that, if approvals remained at current levels, construction activity could also begin to decline”.
So, what does it all mean? Well, “The Board judged that holding the stance of monetary policy unchanged would be consistent with sustainable growth in the economy and achieving the inflation target over time.”
Steady as she goes….