From Elliot Clarke & Simon Murray at Westpac:
…the take home from Budget 2019 is that, while supportive of activity over the long-term, the near-term impact on incomes and activity is limited. Labor’s alternative proposals, as per the budget reply, are also spread out over time. So no matter which party wins in May, the headwinds of persistent weak income growth and declining house prices are set to hold growth well below trend through 2019. This is clear justification for interest rate cuts from the RBA, which Westpac believes will come in August and November.
While the RBA is yet to adopt an easing bias, the April meeting decision statement did emphasise the fluidity of the situation…
The last sentence is important: the RBA has not yet adopted an easing bias. Perhaps because of the housing debt bubble.
Business investment has already failed to respond to interest rate cuts.
10-Year AGB yields are already below US Treasuries but have failed to significantly weaken the Australian Dollar.
House prices are falling.
Plunging high-density housing approvals promise a sharp slow-down in housing construction.
Dwelling Investment is likely to join Mining Investment in the red, detracting from GDP growth. Windfall iron ore prices (Exports) are keeping the economy afloat, while they last.
Bank’s impaired and total non-performing assets are low, but likely to rise if the housing fall (and construction down-turn) continues.
Bank capital ratios are modest at just over 10% of common equity (CET1) against risk-weighted assets. But that falls to about 5.5% without risk-weighting (leverage ratio). Not a lot of room for comfort.