Construction to rebound?
The Reserve Bank of Australia released its SOMP, which forecast a fairly immediate recovery in GDP growth, jumping back to 2.8 per cent next year, with the central case returning to above 3 per cent growth after that.
If you think that the speed of the rebound looks rather optimistic, then you're not exactly Robinson Crusoe there...apparently so too did half of the Twittersphere!
If there is a fudge, then it may lie in the panglossian improvement forecast for dwelling construction.
To date, annual dwelling approvals have fallen sharply from 233,000 to 176,000, while dwellings under construction had already fallen from 219,000 to 206,000 by the end of June this year.
It is entirely feasible that detached housing construction will turn around next year as housing prices continue to rise, but confidence in the new high-rise apartment sector has been wrecked, and pre-sales have reportedly dried up.
Granted, for reputable apartment developers that have been around for a long time then buyer confidence may return soon, but for too much of the investor stock there are fears of defects and other quality issues.
As for the other forecasts, trimmed mean inflation is expected to pick up to 1.8 per cent next year, although commentators didn't seem particularly convinced:
Unemployment isn't expected to decline at all next year, remaining at well above 5 per cent, with an eventual improvement pencilled in for 2021.
Roy Morgan estimates that more than two million Aussies remain unemployed or underemployed, but sadly there doesn't seem to be much prospect of a tighter labour market.
Roy Morgan estimates that more than two million Aussies remain unemployed or underemployed, but sadly there doesn't seem to be much prospect of a tighter labour market.
Any talk of faster wage price increases in 2020 will likely thus be thwarted.
Finally, it was interesting to note that the generally optimistic RBA doesn't believe it will even hit the lower end of the inflation target throughout 2019, 2020, and 2021.
The forecasts and fan charts assume market pricing for interest rates, which implies some chance of an interest rate cut by the middle of 2020.
The forecasts and fan charts assume market pricing for interest rates, which implies some chance of an interest rate cut by the middle of 2020.
The central case remaining below target may be one indirect way of requesting a little assistance from fiscal policy.
Two years ago this week the RBA also forecast inflation remaining below target throughout the forecast range, which was thought at the time to convey an extended period of low interest rates.
Inflation has now been below target for 15 consecutive quarters, with growth in the economy growing at a below-potential rate.
