What will the deteriorating economic conditions do to interest rates?

The economic outlook for Australia has deteriorated and the ANZ Bank have recently have made some adjustments to their economic growth and cash rate forecasts.

Here’s what the Bank said:home loan

Economic Overview

With the recovery in non-mining activity remaining lacklustre, we have made some adjustments to our Australian economic forecasts and now expect slightly lower growth over the next year or so.

Non- mining activity continues to disappoint, and the broadening of the recovery beyond housing remains disappointingly slow.

Below trend growth will see the unemployment rate edge higher through this year, which will keep pressure on monetary policy.

Consequently, we continue to expect the RBA to cut the cash rate next month, and expect rates to stay at historic lows through this year and next.

We now expect growth of just 2.4% in 2015 and 3.0% in 2016. By 2017, the non-mining recovery is expected to be picking up solidly, the drag from mining investment will be almost complete and LNG volumes will be adding significantly to growth.

UNEMPLOYMENT EDGES DOWN…BUT THE DIRECTION IS UP

Labour force data last week were modestly better than market expectations, with the unemployment rate edging down to 6.3% in February.jobs unemployed job work employment

The economy added 15.6k jobs, offsetting the 14.6k decline the previous month.

Employment growth was spread across most states, with only South Australia and Tasmania posting mild declines in February.

Victoria was strongest with a net gain of 12.8k jobs, and annual growth of 3.1% y/y, the strongest in three years.

Coupled with a slight fall in labour market participation, unemployment in Victoria fell sharply to 6%, from 6.6% previously.

Contrary to our expectations of an improvement in New South Wales, employment essentially remained flat, after declines in the two previous months.

Below-trend growth outcomes (both past and expected) are consistent with a further rise in the unemployment rate to a peak of 63⁄4% in mid-2016.

unemployment

HOUSING FINANCE GROWTH DRAWS A BREATH IN JANUARY

After strong growth in December 2014, housing finance eased in January, down 1.2%.

This result reflected softer activity across both investor (-0.1%) and owner-occupier (-2.4%) finance.

January’s data reveals that trend growth is running at less than half the pace of four months ago, which will give some comfort to the RBA and APRA, which have warned about the undesirable consequences of rapid growth.

Property Invetsors

CURRENCY STRATEGY

We have revised down our AUD forecasts, targeting 0.72 by end-year.

Global factors have driven the recent sell-off, with the further shift down in China’s growth particularly notable.

Economic Forecasts



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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been once agin been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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