April 12, 2019 / 12:12 AM / 4 months ago

Australia economy to slow on wilting home prices, spending - Reuters poll

SYDNEY (Reuters) - Analysts have again cut forecasts for Australian economic growth following a deeply disappointing end to last year when weakness in consumption and slumping house prices overwhelmed strength in the labour market.

Economists polled by Reuters forecast Australia’s A$1.9 trillion ($1.4 trillion) annual gross domestic product (GDP) would expand 2.2 percent in 2019, down from a prediction of 2.7 percent in the previous poll.

Growth was seen picking up to 2.6 percent in 2020, though that would still be short of the 2.75 percent rate considered trend.

“Housing and the consumer remain at the epicentre of the domestic slowdown. Developments on both fronts continue to point to the 2018 drag carrying into 2019,” said Westpac senior economist Matthew Hassan.

“We expect growth to remain at a subdued 2.2 percent pace throughout 2019 and 2020.”

The slowdown has fuelled speculation the Reserve Bank of Australia (RBA) would have to cut interest rates from already record lows to shore up activity.

Just this week, RBA Deputy Governor Guy Debelle acknowledged economic output had disappointed but argued the continued strength of employment might presage an upturn.

Australia’s conservative government has also chipped in some fiscal stimulus for the second half of this year with a budget full of tax breaks and infrastructure spending.

The government faces an election on May 18 and is trailing badly in opinion polls.

“A disposable income boost would alleviate some of the strains on household budgets and reduce the downside risks to consumer spending,” said CBA chief economist Michael Blythe.

He estimated planned tax cuts would have the same economic impact as two quarter-point cuts in interest rates.

“The lift in transport infrastructure spending will help support demand in the short term, and lift incomes and productivity over the longer haul,” he added.

There is plenty of scope for stimulus as inflation remains well-contained, having run below the RBA’s 2-3 percent target band for two whole years.

The latest poll showed analysts expected inflation of just 1.9 percent for this year, rising marginally to 2.2 percent in 2020.

(For other stories from the Reuters global economic poll:)

($1 = 1.3914 Australian dollars)

Polling by Khushboo Mittal; Editing by Richard Borsuk

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