RBA signal slowdown in major rate cuts
Welcome back!
The RBA have given a clear indication that future cuts will be much more moderated and the chance of major cuts may be over with the release of their quarterly statement on monetary policy.
The rate cut this week took the RBA rate to a 45 year low. With the fiscal stimulus of recent rate cuts and the Government’s stimulus package the economy the RBA is likely to sit back and monitor the impact on the domestic economy before further cuts.
The RBA expects growth of 0.25% in 2008-09, while forecasting 1.25% in 2009-10. Perhaps even this estimate could be excessive in the global malaise continues.
Inflation plummets
Inflation fell by it’s biggest amount in six years further locking in hopes for a 100 basis point cut by the Reserve Bank this week.
Economic data also confirmed manufacturing fell each of the last six months to a record low as the declining economic growth further confirms a sharpening contraction.
Some economists are now predicting levels around 2.50% to 2.75% by the middle of 2009 as Australia verges on recession.
NAB Business Survey reveals business confidence at record lows
Australian business confidence continued to fall in October as fears of a growing global recession impacted heavily upon the outlook of the domestic economy.
The monthly National Austalia Bank business survey revealed that confidence fell 21 points to minus 29, the lowest level since the survey began in 1997.
The survey which showed a fall in confidence across all major sectors indicates that falls on stockmarkets and the prevailing negativity in the press regarding the global economy have finally taken their toll on business confidence.
NAB indicated their expectation that the Reserve Bank wil cut rates by another 75 basis points in December and a further 75 basis point cut in the first three months of 2009. This would take the RBA cash rate to 3.75%.
Australian jobless rate forecast to skyrocket by 2010
JP Morgan’s Australian chief economist Stephen Walters has forecast the Australian jobless rate to double by the end of 2010 to 9% as over 1 million people are out of work. This would be the highest level since 1994.
Walters forecast comes on the back of growing insecurities surrounding the domestic economies growth rate and the ongoing world slowdown in particular in China.
With China showing signs of a slowing economy from the previous breakneck growth rates in excess of 10% the world slowdown is likely to take a heavy toll particularly on economies like Australia who have leveraged off the Chinese economy.
Walter indicated a that the domestic growth in the economy would fall to 1.4% in 2009 as the growing slowdown in China takes hold.
The grim predictions bode well for further rate cuts as the domestic markets have priced in a forecast 50 basis point cut in the next month or two.