The Bull

Friday 17

August, 2018 3:31 PM



Strong GDP but RBA rate rise still way off

Strong GDP but RBA rate rise still way off

This week's strong growth numbers haven't changed the view of economists that an official interest rate rise is still some way off.

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By AAP 07.06.2018 02:31 PM

Reserve Bank governor Philip Lowe should be pretty chuffed by the latest growth figures.

The central bank for some time has been predicting a solid annual growth rate of three per cent or more for this year and next.

This week's national accounts delivered, at least for the first few months of the year.

The one per cent surge in economic growth during the March quarter, which lifted the annual rate to a robust 3.1 per cent, is a marked turnaround from the paltry 0.5 per cent rise in the final three months of 2017.

A rebound in exports and continued strengthening business investment were the key factors behind the rosier performance.

However, borrowers shouldn't get too agitated that this translates into an imminent interest rate rise.

The Reserve Bank left the cash rate at a record-low 1.5 per cent for the 20th consecutive board meeting this week.

Financial markets predict this will remain the case well into 2019.

In his post-board meeting statement, Lowe pointed to household consumption as a key continuing source of uncertainty to the outlook, blaming slow household income growth and high debt levels.

Again, the national accounts showed his worry was on the mark.

Household consumption grew just 0.3 per cent in the March quarter after being a bright spot in the previous three months with a one per cent gain.

Treasurer Scott Morrison concedes this component shifts around from quarter to quarter, noting the Rugby League World Cup buoyed spending in the December quarter as people dined out to watch the action.

"What we are seeing is the Australian economy strengthening but ... the benefits of that growth need to reach all Australians and that has not yet been achieved," he told ABC radio.

"Those Australians will not benefit from an economy that is choked by higher taxes, an economy that doesn't grow as strongly because of weaker investment."

Whether the government can get its personal income tax plan, which was the cornerstone of the May budget, or the remainder of its business tax cuts through the Senate remains to be seen.

At this stage, the government doesn't appear to have the Senate numbers on either as the proposed laws stand.

In both cases, the reductions are spread over a number of years.

A new survey suggests some households are in desperate need of support now.

The research of 1000 respondents by non-profit organisation Good Shepherd Microfinance found one in four people goes without household essentials and can't pay bills because the cost of living has become too expensive.

Even in the nation's capital - one of the wealthiest parts of the country - one in five ACT respondents couldn't pay for medical treatment in the past year.

Lowe also continues to point to a gradual improvement in wages growth, with unemployment set to fall at a snail's pace.

However, the central bank believes the rate of wage growth has now reached its lowest point.

So there is little reason for the Reserve Bank to rush in with an interest rate rise just yet, even if this week's buoyant economic figures prove to be more than a one-off.

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