As another financial year comes to a close, it is interesting to take a few moments and reflect on the previous rollercoaster 6 months we have had in both the Australian economy and Federal politics.

A quick snap shot of the key economic indicators as released by the RBA as of 7 May 2019 are as follows:

  • Official cash rate 1.5% - although the RBA announced a reduction of 0.25 on 4 June bring the rate to a historic low of 1.25%
  • Inflation – 1.3%
  • Australia’s economic growth – 2.3% (although only a quarterly change of 0.4% as of March 2019)
  • G7 (Canada, France, Germany, Italy, Japan, UK and US) GDP growth rate – 1.8%
  • Unemployment rate – 5.0% (5.1% as of April)
  • Employment growth – 2.4%
  • Wage growth – 2.3%
  • AUD to USD – $0.70
  • Current population 25,396,680

The last 6 months have seen a volatile share market where the All Ordinaries Index increased from about 5,500 in December 2018 to about 6,600 in May 2019, which is currently 6,461 at the time of writing. The major banks appear to have led the charge despite the Banking Royal Commission.

The March 2019 quarter has seen the largest goods and services surplus on record at $13.6bn which has helped decrease Australia’s current account deficit (in seasonally adjusted terms) by $3.4bn to be $2.9bn. Large export growth has been driven by rising prices for metal ores and minerals.

Australia’s net foreign debt liability position currently sits at $1,099.5bn, although our net foreign equity asset position increased to be $133.3bn at 31 March 2019.

The reduction to the official cash rate is the first rate cut since August 2016 as the RBA tries to head off a further slowing of the economy which would further threaten higher unemployment and keep inflation lower for longer. There is a good deal of economic commentary that expects a further rate cut in August 2019, and if not another before Christmas with possible further cuts throughout 2020. Whether these rate cuts will be enough to stimulate a slowing economy to the extent needed remains to be seen. The biggest question for borrowers is whether the banks will pass on all or some of the rate cuts.

Falling house prices, particularly across Melbourne and Sydney, has perhaps made buying a home a little easier for those who have been able to access funding under more stringent lending criteria following the Royal Commission.

And finally, no change in Federal Government (regardless of your political persuasion) has perhaps provided the majority of small business, retirees and investment property owners with some relief and certainty (at least for the next 3 years) as to the impact on their tax and investment structures and planning they have already invested and committed to.

There is a mix of good and bad and concern and ongoing volatility in all of the above. An interesting time for a newly elected Government to practice what it preaches regarding economic management. A projected budget surplus for 2019 doesn’t hurt, but how much and for how long are the ongoing questions that will plague the Government, Treasury and the RBA with ongoing projections to manage Australia’s key economic fundamentals.

What will the next 6 months hold? Time of course will only tell. It would appear, however, that slow wages growth, a slowing economy and reduced savings are all contributing to some of the concerns. The ‘R’ word isn’t being used much just at the moment, and with over 25 years of annual growth, Australia can still be said to be the lucky country.

Jeff Tulk

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