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Oliver's Insights - The Australian economy hits another rough patch - implications for investors

Shane Oliver, Head of Investment Strategy and Chief Economist.

 

The attached note looks at the recent softening in Australian economic growth and the implications for investors.

The key points are as follows:

  • Annual Australian growth slowed to 1.7% in the March quarter hit by bad weather & weak consumer spending.
  • A declining drag from falling mining investment, strong public infrastructure spending and a likely resumption of trade contributing to growth should all help keep Australia out of recession. However, soft consumer spending and a slowing in the housing cycle will act to constrain growth to below Reserve Bank of Australia (RBA) and Government forecasts. As such, there is far more chance of another RBA rate cut than a hike over the next year.
  • Australian shares will likely be higher by year end. But global shares are likely to continue outperforming.

Meanwhile, today’s consumer confidence data from the Westpac/Melbourne Institute showed a further 1.8% fall in confidence taking it to a subdued reading of 96.2. The combination of poor wages growth, high levels of underemployment, bank rate hikes, higher electricity prices, talk of an increase in the Medicare levy, etc, are likely all depressing consumer confidence. The weakness in consumer confidence continues to contrast with the relative strength seen in business conditions and confidence according to the NAB business survey. The negative impact of low wages growth on household income in contrast to a positive impact on profits (at least in the short term) may be a factor, but it’s interesting to note that the divergence has essentially been in place since the 2013 election.

 

                               

Source: NAB, Westpac/Melb Institute. AMP Capital


Oliver's Insights - The Australian economy hits another rough patch - implications for investors Oliver's Insights - The Australian economy hits another rough patch - implications for investors (164 KB)




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