Analysts at Westpac have changed its RBA call to two 25bp cuts in 2019, following a marked deceleration in Australian GDP growth in the second half of 2018, in addition to the rising domestic and global risks.
“Westpac had previously anticipated growth of 2.6%yr in 2019 and 2020, but we are now forecasting growth of just 2.2%yr for both years. This contrasts with the RBA’s around 3.0%yr central scenario for 2019 and 2.75%yr in 2020.”
“With respect to the labour market, whereas the RBA anticipates a decline in the unemployment rate to 4.75% at end-2020, we expect the unemployment rate to rise to “5.5% in the second half of 2019 and further by end 2020”. In terms of the timing of the rate cuts, we look to the August meeting for the first cut, followed by a second in November.”
“The key risk to our weaker growth forecast and call for two rate cuts is the labour market. This week, 39k new jobs were reported for January, more than twice the market estimate and enough to keep annual employment growth at 2.2%yr. Though this pace of growth was above population growth, the unemployment rate remained unchanged in January as participation lifted further.”