You’d have to be as blind as the RBA to miss the signals. GDP is made up of six components and they are not going well on balance:
- government consumption is strong and likely to stay that way;
- government investment is peaking as the NBN rolls off and infrastructure starts fade;
- household consumption is weakening with car sales and international travel down sharply plus retail looking highly questionable;
- business investment has been good and the outlook for six months is solid but it will track broader demand and housing investment is about to tumble;
- inventories will ebb and flow;
- net exports (volumes) are weak owing to China’s thermal coal blockade and the drought despite the LNG ramp up.
In short, the Australian economy is quietly falling apart and if it does not receive any new juice soon it is going to crater as we enter the Hayne Royal Commission recommendations, the federal election stall and Labor’s reform agenda. I have now downgraded my outlook for domestic demand from what was already bearish:
This is an environment in which unemployment will rise at a decent clip threatening much worse outcomes as that feeds back into asset prices.
That markets and economists are still forecasting rate hikes is ridiculous. That cuts remain off the radar of nearly all is bizarre.
By Houses & Holes (David Llewellyn-Smith). Reproduced with kind permission from Macrobusiness.
Comment: Time for the government to go big on infrastructure spending. Not school halls or pink batts insulation but real infrastructure like transport and communications investments (5G for example) that will boost long-term GDP growth.