RBA: Balanced outlook for the economy - TDS

Annette Beacher, chief Asia-Pacific macro strategist at TD Securities, notes that the RBA Governor continues to voice a far more balanced outlook for the economy, thereby defying pessimistic market pricing.

Key Quotes

“In recent speeches and his semi-annual testimony on monetary policy he highlighted that house prices may have corrected the most in the two largest states, but they also have unemployment rates at decade lows.”

“The inconsistency of weak domestic demand but strong labour markets is the focus of RBA research (and central banks globally for that matter). Will activity in the two largest states collapse along with house prices, demanding a monetary policy response, or will we see continued retrenchment in the consumer via weak car sales and cautious discretionary spending? We favour the latter.”

“The political situation is unfolding along the lines of the New Zealand experience. If the Opposition ALP wins the May election, expect higher minimum wages, tax cuts for middle Australia and higher welfare payments, all straight out of the NZ Labour Party playbook.”