New economic figures suggest why the Reserve Bank has held fire on cutting the cash rate for now.
Retail spending continues to grow at a steady pace, while Australia’s international trade deficit has markedly improved.
RBC Capital Markets strategist Michael Turner said Wednesday’s numbers were consistent with his initial expectations that the economy grew by 0.6 per cent in the September quarter.
He said this would mark a “rebound of sorts” from the soft 0.2 per cent expansion in the June quarter.
The central bank left its key rate at two per cent at Tuesday’s monthly board meeting, saying that “economic conditions had firmed a little over recent months”.
But it also said the inflation outlook now allows scope for a further easing in monetary policy should the economy need it.
The trade deficit narrowed to $2.3 billion in September, continuing the improvement from the weather-related blow-out in the June quarter.
TD Securities chief strategist Annette Beacher expects exports will have added a strong one percentage point to growth in the September quarter after the 0.6 percentage-point detraction in the previous three months.
Retail spending grew 0.6 per cent in the September quarter, only a shade below the 0.7 per cent in the June quarter.
However, ANZ economists Katie Hill and Felicity Emmett are concerned about the outlook for spending despite improved consumer confidence since Malcolm Turnbull became the Liberal leader.
“We are sceptical that optimism surrounding the new prime minister can overwhelm the headwinds from a softening housing market and ongoing weak wages growth,” they say.
Indeed, a new survey suggests Mr Turnbull has a lot of work to do to lift people’s perceptions about the economy.
An online survey by Essential Research found three quarters of respondents believing the cost of living had worsened in the past 12 months, and over half saying their income had fallen behind price rises in the past two years.
That’s despite inflation growing by just 1.5 per cent in the past year, well below the RBA’s two to three per cent target range.
Furthermore, the Australian Bureau of Statistics’ “selected living costs indexes” showed for employees the cost of living grew by a mere 0.7 per cent over the year.
These indexes gauge how much after tax incomes need to change to allow different types of households to purchase the same quantity of consumer goods in a given period.
The Essential poll also found a majority saying the economy overall is in a worse state than a year ago, particularly job security and unemployment.