Australia's economy held up by net exports and government spending – ANZ

Analysts at ANZ note that Australia’s Q2 GDP report revealed an economy that has been held up by net exports and government spending, but private demand was exceptionally weak, continuing a trend that has been in place for some time.

• “The second half of the year looks better, with tax cuts and lower interest rates likely to boost spending. The housing market has been the immediate beneficiary of this stimulus. We expect retail will also get a boost, though the fall in retail sales for July was a surprise.
• But when we look into 2020 we struggle to see an economy that will grow fast enough to put downward pressure on unemployment. Indeed, we think the more likely outcome is higher unemployment and/or underemployment as the impact of the sharp slowdown in domestic demand feeds though into the labour market.
• We think the RBA will judge that it has little choice but to ease further over the coming year. If this triggers a sharp lift in credit growth, we would expect other policymakers to respond. We think the RBA will resume its easing cycle in October and we see the cash rate hitting what we perceive to be the effective lower bound (ELB) of 0.25% by May 2020.
• Once the RBA is at the ELB, what comes next becomes the obvious question.”