Reserve Bank tipped to cut interest rates to 0.25% as retailers predict grim Christmas UBS predicts cut to cash rate and believes more needs to be done to boost economy in face of low wage growth
Martin Farrer
Wed 13 Nov 2019 03.11 GMTLast modified on Wed 13 Nov 2019 03.18 GMT
The Reserve Bank will have to cut the cash rate to 0.25% by the middle of 2020 in order to prevent the economy going backwards, according to a new report.
Despite the prospect of a “mini boom” in house prices and increased public-sector spending, the investment bank UBS predicted on Wednesday that more needed to be done to boost the economy in the face of low wage growth and consumers’ reluctance to spend their spare cash.
Concerns about household spending were highlighted by official figures on Wednesday showing that wages grew less than expected in the last quarter. Earnings are now on course to grow by just 2.2% for the year and economists expect that number to fall further as unemployment ticks up.
Retailers added to the uncertain outlook by predicting that they expect the worst Christmas shopping season for six years, according to another separate survey on Wednesday by Deloitte.
In a major 400-page report, UBS economists, who accurately forecast the RBA’s three rate cuts this year, looked at the prospects for the Australian economy as well as the outlook for the rest of the world.
Even assuming that the US-China trade dispute does not worsen, they expect the RBA to act again because Australian household income remains stuck near a record low, dragged by weak wages and average earnings. The Morrison government’s much-heralded tax cuts “should be a significant boost”, they said, “but appear to have been largely used to repay debt so far” rather than pumped back into the economy through extra spending.
