No QE: Goldman Weighs In on Australia’s Monetary Policy Debate
Australia’s economic growth will accelerate to 2.5% in 2020 from 1.75% this year, Boak predicts.
(Bloomberg) -- Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Apple Podcast, Spotify or Pocket Cast.
Australia’s central bank will probably lower interest rates further in the “near term,” but is unlikely to deploy unconventional policies such as a bond buying program in 2020, according to Goldman Sachs Group Inc.
“The recent turnaround in dwelling prices is likely to see housing-related consumption growth rebound,” Andrew Boak, chief economist for Australia at Goldman, said Friday. “Alongside a moderate lift in mining investment, we expect a material pick-up in aggregate private demand will more-than-offset a gradual tapering in recent strong growth in public demand.”
Goldman’s call flies in the face of an emerging view that the Reserve Bank of Australia will prove unable to meet its inflation target and have to resort to quantitative easing as it runs out of conventional rate ammunition. Banks including Citigroup Inc. and JPMorgan Chase & Co. forecast unconventional measures for next year.
Boak’s assessment fits with Governor Philip Lowe’s view about a possible convergence of tailwinds for the economy.
Australia’s economic growth will accelerate to 2.5% in 2020 from 1.75% this year, Boak predicts. The RBA, in its updated quarterly forecasts released this month, sees the economy speeding up to 2.5% in mid-2020 and 2.75% by the end of that year.
“Despite growth momentum improving, the magnitude of the rebound is likely to fall well short of eliminating spare capacity in the labor market,” Boak said in Goldman’s annual economic outlook for Australia.
He sees unemployment falling to about 5% by the end of next year from the current 5.3%. That’s still well north of the 4.5% level that the RBA estimates constitutes full employment.
“As a result, wages growth and underlying price inflation are expected to edge up a bit but remain fairly subdued overall, with the latter remaining below the RBA’s 2-3% target band,” he said.
Boak forecasts the RBA will cut the cash rate another quarter percentage point to 0.5%. That would be the upper end of the range senior policy makers have estimated as the lower policy bound.
Speculation on QE in Australia is likely to remain “alive and well” if the global outlook deteriorates or if domestic fiscal settings aren’t loosened by the time of the federal budget in May, Boak said.
Lowe has been urging the government to free up the fiscal purse strings to support monetary policy -- a call the government has steadfastly resisted. Prime Minister Scott Morrison defended his goal of returning the books to the black Thursday, saying the economy faced headwinds for years to come.
Lowe will address an annual gathering of business economists Tuesday in a speech titled “Unconventional Monetary Policy: Some Lessons from Overseas.”
To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net
To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Jiyeun Lee
©2019 Bloomberg L.P.