The economy of Australia is performing incredibly well according to statements by Reserve Bank of Australia Philip Lowe, Governor Monetary Policy Decision. The Gross Domestic Product has been increased by 3.4 per cent while the unemployment rate has reduced to 5 per cent over the past year; this is the lowest point in six years. However, it is important to note that the forecasts for economic growth in 2018 and 2019 have been modified. The central outline is for the growth of GDP to be at an average of 3½ per cent over these two years before it reduces in 2020 as a result of the slower growth in the exports of resources.
The continuous expansion of the global economy coupled with the fact that most advanced economies are increasing at an above-trend rate and having low unemployment rates. The pace of growth in China has diminished a little, as the government is introducing favorable policies and observing the hazards in the financial sector. The inflation is still low across the globe, though its rate has increased because of the higher oil prices and an improvement in the growth of wages. There is an expected rise in inflation rate due to the stiffening labor markets, in the United States, and the considerable fiscal stimulus. One continuous doubt concerning the global outlook is as a result of the international trade policy direction in the United States.
There has been an expansion in the financial conditions in the advanced economies, but this has been stiffened in recent times. The equity prices have reduced while returns on government bonds in some economies have improved, though remain low. The United States dollar has considerably appreciated this year. On the other hand, the money-market interest rates have reduced in recent times in Australia despite recording an increase during the year. The standard variable mortgage rates are somewhat higher than a few months ago, while the rates charged to individuals borrowing for the first time for housing are considerably lower than for those with unpaid loans.
There is an aura of positivity surrounding business conditions, and there is an expectation of increase for the non-mining business investment. The increased levels of public infrastructure investment are also offering support for the economy, as well as the improvement in resource exports. However, a significant source of doubt is the household consumption outlook. The household income has remained low with stunted growth, coupled with higher debt levels and the prices of some assets have reduced drastically. This has resulted in severe conditions in various facets of the farm sector.
The terms of trade of Australia has improved over the last few years, and have remained stronger than anticipated. There is no doubt that it has helped in the advancement of the national income. Though there is an expectation that the terms of trade will decrease as time goes by, there is a probability that the terms of trade in Australia will remain at a high level for some time. The Australian dollar is still within the range it has maintained in the last two years on a trade-weighted basis, though the Australian dollar is presently in the lower region of the scale.
The labour market’s outlook remains optimistic as the economic growth is above the trend; an additional reduction in the unemployment rate is predicted to be around 4¾ per cent in 2020. On the other hand, the vacancy rate remains high, and there are accounts of skills shortages in some places. Despite picking up a little, the growth of the wages remains low. There is an expectation that economic improvement should result in an extra lift in wages growth over time; it is anticipated to be a slow process.
The inflation rate has remained steady and low. CPI inflation was 1.9 per cent and, in basic terms, the inflation rate was 1¾ per cent over the past year. These consequences tally with the expectations of the Bank and were grossly manipulated by declines in some administered prices as a result of the altercations in the government policies. There is anticipation for inflation to pick up over the next few years, and the rise is likely to be slow and steady. The central situation is for the inflation rate to be 2¼ per cent in 2019 and a bit greater in the coming year.
The conditions in the Sydney and Melbourne housing markets have continuously enjoyed peace, and the national measures of rent inflation have remained low. The growth in credit stretched to the owner-occupiers has alleviated but maintained its robust nature, while the demand by investors has reduced significantly as the housing market dynamics have changed. There have been stricter credit conditions in recent times, despite the low status of the mortgage rates, and in the face of intense competition for borrowers of high credit quality.
The low level of interest rates continuously supports the Australian economy. Moreover, there is an expectation of the further progress in unemployment reduction and getting the inflation return to target, though it is considered to be a slow process. Fortified with the available data, the Board concluded that leaving the monetary policy stance stable at this meeting would agree with the viable growth in the economy and aim to achieve the inflation target over time.
For comments and feedback: editor@bestratedirect.com