In the minutes of August 6 RBA policy meeting, the central bank noted that “an extended period of low interest rates” would be required. And after two back-to-back rate cuts in June and July, it’s “appropriate to assess developments in the global and domestic economies before considering further change to the setting of monetary policy”. And members would “consider a further easing of monetary policy” if needed. The minutes are in-line with expectations that RBA would stand pat in September, before taking more actions later in the year.
Globally, RBA noted that “escalation of the trade and technology disputes had increased the downside risks to the global growth outlook”. And, “uncertainty around trade policy had already had a negative effect on investment in many economies.” Low inflation provided central banks with “scope to ease” further.
Domestically, growth in Australia had been “lower than expected” in the first half but its expected to “strengthen gradually” to 2.75% over 2020, and then around 3% over 2021. Developments supporting the outlook include lower interest rates, higher household income growth, exchange rate depreciation, positive resources sector investment, some stabilization of housing market, and ongoing high levels of infrastructure investment. Risks are tilted to the downside in the near term, but more balanced later in the forecast period.
Full RBA minutes here.
US CBO expects tariffs to lower GDP growth by 0.3% by 2020
US Congressional Budget Office projected the economy to grow 2.3% in 2019, unchanged from January forecasts. Growth is expected to gradually slow from 2020 to 2023, averaging 1.8% per year.
The slowdown ahead would be because growth of consumer spending subsides; as growth in purchases by federal, state, and local governments ebbs; and as trade policies weigh on economic activity, particularly business investment.
Additionally, “higher trade barriers—in particular, increases in tariffs—implemented by the United States and other countries since January 2018 are expected to make U.S. GDP about 0.3 percent smaller than it would have been otherwise by 2020.”
CBO further explained that “Tariffs reduce domestic GDP mostly by raising domestic prices, thereby reducing the purchasing power of consumers and increasing the cost of business investment. Tariffs also affect business investment by increasing businesses’ uncertainty about future barriers to trade and thus their perceptions of risks associated with investment in the United States and abroad.”
Full release here.