In October, the Federal Reserve of Australia decided to leave the cash rate unchanged at 1.50 percent. A significant reason for the decision was the improvement of the global economy.
The Australian trade levels will experience a slight decline in the near future, but will maintain a steady position. At the same time, the Chinese economy can benefit from growth through increased spending in construction and infrastructure, while debt continues to provide a moderate level of risk. Throughout the global economy there will always be some uncertainties, but labor markets have improved. In some areas labor growth has risen above expectations.
Although the labor force is growing, wage figures are not following the same trajectory. Oil generally has a strong impact on inflation as price declines in oil often signifies a potential slowing of inflation. The United States Federal Reserve has recently decided to leave interest rates unchanged, but will continue to normalize its massive balance sheet. However, many other countries are not expecting much monetary easing of their economies.
Global financial markets have been rising to historic levels and volatility is harder to locate. Last quarter, the Australian economy rose by 0.8 percent. This growth is in line with the Bank’s expectation for the country and believes the economy will continue to expand in the coming years.
A consistent trend and consolidation of non-mining business investments has been noticed and is a factor much of the world would agree should maintain. A high level of infrastructure investments and capacity utilization is a source pointing to the positive future of the economy. The problem still resides in low wage growth and the potential for increased household debt, which will lead to steady decline in consumer spending.
The number of job applicants has risen over the recent months and the number of employment opportunities has increased as well. This employment improvement has been reflected throughout the nation. Over the next few years the unemployment rate is expected to decline a bit slower than the rate of employment fillings. A positive labor force is a solid indicator of a progressing economy.
While wage growth remains on the low side, and most likely will continue that path for some time, the job market previously discussed should soften the hurt during that period. Yes, the economy needs consumer spending growth, which comes from wage increases, but if the unemployment rate drops them the expectation of more households purchasing power exist.
The Australian dollar experienced appreciation over the past few months in relation to the US dollar. As a result, the higher exchange rate is expected to subsidize the ongoing price pressure existing in the country’s economy. International currency rates play a significant role in the trade conditions of countries. A growing exchange rate would result in bringing on slower economic activity and potentially inflation.
Not just this last quarter, but for a few years housing debt has outpaced the growth in housing income. This is a leading indicator to watch out for. Substantial housing debt with less household income to cover it will create a snowball effect of defaults and consequently will damage the economy as a whole. Investors are not the worry of the housing industry as borrowing from that party has slowed, but debt of the primary homeowners is a mounting issue.
Overall, housing market conditions maintain some fluctuations throughout the country. In some areas, home prices have been appreciating steadily, while in other parts they have been falling. Notably, in Sydney home prices have risen tremendously, but signs are pointing to an easing on prices. It is a good thing rent prices are edging upward slowly as the eastern capital cities are expecting a surge in apartment inventory.
Although low interest rates play defense against inflation, it has helped stabilize the Australian economy. With the pertinent available information, the Board believed that holding the position of monetary policy unchanged for now would be consistent with reaching the inflation goals over time and significant growth of the economy.
