This week’s ANZ Bank Economic Update commented on the RBA’s position on interest rates (likely to remain stable for a while) and our economic growth prospects (improving) plus a swag of other generally positive indicators.
Here’s what they had to say:
- This week’s post Board meeting press release and Statement on Monetary Policy (SoMP) from the RBA confirms the Bank has dropped its mild easing bias, with the statement noting that monetary policy was “appropriately configured” and that the “most prudent course is likely to be a period of stability in interest rates”. Importantly, the AUD was no longer described as uncomfortably high, although the Bank is looking for the recent depreciation to be sustained.
- The RBA upgraded its growth outlook, lifting its forecasts all through the forecast period. While acknowledging the boost from the lower dollar, the Bank pointed to further evidence that interest-rate sensitive areas of the economy are picking up, highlighting the housing recovery, the pickup in consumer spending and the recent improvement in business conditions and confidence. Nevertheless, the Bank remains uncertain about the impact of the unwinding of the mining investment boom and ongoing drags from structural change. This fits with ANZ’s view that the improvement in economic growth (and the unemployment rate) will be a drawn out affair and rates will likely remain unchanged through 2014.
- The RBA also confirmed that the Q4 CPI was higher than expected and the Bank appears more concerned about the upside risks to the inflation outlook. While the Bank’s upgraded forecasts are still consistent with the 2-3% target, the Bank seems particularly uncertain about the drivers of the higher-than-expected Q4 inflation outcome and the pickup over H2 2013, and consequently the overall outlook for inflation.
- ANZ and Roy Morgan have teamed up to publish a high-frequency weekly consumer confidence index. For Australia, the index will be launched on 11 February at 10:30AEDT and will be published weekly. ANZ will also produce a monthly index for Indonesia with the first release on 18 February.
- Local data this week also confirmed the strengthening in consumer spending.
Domestic retail sales increased by a solid 0.5% m/m in nominal terms in December and have grown at an annualised pace of 8% over the past six months. In Q4 as whole, retail sales increased by 2.0% in nominal terms and 0.9% in real terms, suggesting a solid contribution to GDP growth in the quarter.
- Housing market indicators released this week also remained strong.
Dwelling approvals continued to consolidate the strong surge from the third quarter of 2013, foreshadowing a solid pick up in new building activity in 2014.
Momentum in house prices also remains solid, particularly in Sydney and in the Melbourne property market.
- Meanwhile, the trade balance swung into surplus in December, underpinned by a sharp increase in exports (especially farm exports), which more than offset a rise in imports.
This is a taste of what is to come as resource exports pick up steam and capital imports related to mining investment decline for a period.
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