The All Ordinaries Index (ASX: XAO) is down 0.24% after the Reserve Bank of Australia (RBA) downgraded its growth expectations for Australia again.
The Reserve Bank of Australia (RBA) is Australia’s central bank. One of its biggest roles is to decide Australia’s interest rate, taking into account economic conditions including unemployment, inflation and the housing market. The RBA interest rate has a ripple effect across the whole economy.
RBA’s Latest Economic Downgrade
The central back acknowledged that its interest rate cuts could actually be causing people to have too much of a negative view on the economy, according to reporting by the Australian Financial Review.
In conjunction with those thoughts, the Reserve Bank has reduced its expectations for consumption and growth for the fourth time in 2019 because of the drought, taxes and a slowdown in investments.
Residential construction is one of the worst-hit areas with a contraction of 11.3% this not the 9% expected fall. It’s going to be a 7.4% fall to June 2020 instead of 7% according to the RBA.
The housing price turnaround is expected to help the construction turnaround in 2021, but it’s hard for the RBA to say how long that will take.
Household consumption growth has been decreased to 1.4% this year before growing to 1.9% by the first half of 2020, down from the previous predictions of 1.5% and 2.1%.
Similarly, economic growth for 2019 and in the year to June 2020 have been reduced by 0.1% to 2.3% and 2.6% respectively.
Income growth is weak from weak farm results due to the drought, a drop in housing-related business income and ongoing growth of tax payments.
The RBA thinks wages growth will remain weak for the year at 2.2% and and inflation will only hit 1.9% by June 2021.
One of the rays of hope is that business investment will return better than previously thought with it rising to 6.9% in June next year, up from 5.6% previously forecast.
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At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.