Two more rate cuts on the horizon in 2020
The RBA is likely to cut rates to 0.25 per cent in 2020, as it hopes to jump-start the economy while wages and growth continue to remain flat, according to Deloitte Access Economics.
The group’s business outlook report stated that interest rates in Australia were likely to remain low, with the central bank likely to cut again as the economy continued to flounder and government stimulus spending looked like an unlikely prospect.
“The Reserve will cut rates twice more, partly as the economy is still weak, but mostly because inflation is so stubborn,” the report said.
“Australia’s private sector is in the slow lane, so there’s not enough momentum in sales to hand businesses much pricing power. And although wage gains have been a little more inflationary than you’d think at first glance, given than productivity growth has been dead as a doornail, they too are an unlikely candidate to boost consumer pricing pressures.”
Deloitte said the RBA’s pessimism around the economy had to an extent become a self-fulfilling prophecy, having an effect on consumer and business confidence.
“Australia has been battling the dual demons of drought and housing-related negatives, including cautious consumers and a downturn in housing construction,” the firm said.
“But now there’s a third threat – cratered confidence among consumers and businesses. Our crumbling confidence has a few causes, and this summer’s bushfires don’t help, but the Reserve Bank hasn’t covered itself in glory as it communicates with the public.”
The report said the retail and construction sectors were being particularly badly affected from the declining confidence, experiencing some of the worst economic conditions in 30 years.
“Retail is already amid its deepest downturn since 1990, while construction is shrinking at the fastest rate seen since 1999,” Deloitte said.
“And neither [sector] will be hearing any corks pop in 2020 – by the time this year is over, further falls in apartment activity will mean that residential construction will have matched its weakest ever recorded share of the Australian economy.”
