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Growth remains ‘below potential’: Aviva

Lachlan Maddock
— 1 minute read

Australia is heading into another year of low growth, with the RBA set to cut rates even further, according to a report from Aviva Investors.

Despite RBA Governor Philip Lowe’s repeated insistence that the economy had reached a “gentle turning point”, Aviva Investors believes that sluggish growth will force the RBA to cut rates to their effective lower bound of 0.25 per cent. 

Aviva expects the next rate cut will occur as early as the RBA board’s first meeting in February. However, the bank will likely remain within the realm of conventional monetary policy. 

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“We do not expect unconventional policies will be implemented, with the RBA reluctant to undertake QE,” Aviva wrote in its House View 2020 report.

“However, if the global downside risks were to materialise, it would likely force the RBA to take further action along those lines.”

The successive rate cuts appear to have had little effect on the economy aside from pushing up house prices. 

House prices in Sydney and Melbourne are quickly rising back towards their record highs, but an underlying weakness in the broader economy means that the improvement is unlikely to persist. 

“Indeed, while house prices may be rising again, dwellings investment is likely to be a material drag on growth in 2020,” the report reads. 

Consumers are also more at risk from the long-term headwinds of rising household debt, low saving rates, and rising unemployment. 

“Those concerns can be seen not only in low levels of consumer sentiment, but also in the apparent decision to save the recent income windfall from tax cuts and  lower interest rates,” the report reads. 

“That is likely to see the unemployment rate rise further and put downward pressure on already low wage growth and price inflation.”

 

Growth remains ‘below potential’: Aviva
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