General Information

The global economy is currently experiencing an increasingly uncertain outlook in the face of ongoing trade tensions between the USA and China. Australia is also facing a period of uncertainty amid concerns over the future demand for resources coming out of China, along with continued soft economic indicators domestically.

The Reserve Bank of Australia’s August Statement on Monetary Policy advised that GDP growth is likely to have troughed around the middle of this year and is expected to reach about 2.5% during 2019. It is expected to pick up gradually to 2.75% through 2020, and reach around 3% during 2021, which is slightly higher than previously forecast. Growth is expected to be supported by a number of factors, including lower interest rates and recent tax measures. The established housing markets in some cities are showing signs of a turnaround, which should support spending. The mining sector is also likely to support output growth. In the short-term, resource exports are recovering from recent supply disruptions, while a pick-up in mining investment will boost growth further out.

Inflation remains low in line with more recent projections. Underlying inflation has now been below 2% for around three years. Housing-related inflation, including both rents and prices of newly built dwellings, has been a significant contributor to the low inflation outcomes. Headline inflation was affected by higher petrol prices and increased to 0.7% in the June quarter and 1.6% over the year. Oil prices have fallen more recently, suggesting that some of this effect will reverse in the September quarter. Further out, inflation is still expected to drift up gradually. However, this is now forecast to take place over a more extended period than previously envisaged, as there appears to be more spare capacity remaining in the labour market than had been thought.

Together, the recent data on wages, prices, output and unemployment suggest that there was more spare capacity in the economy than had previously been recognised. They also suggest that, like a number of other countries, Australia can sustain lower rates of unemployment and underemployment without running inflation risks.

(Source: RBA Statement on Monetary Policy)

In further positive news for first homebuyers, Bankwest has introduced a 2% deposit loan product with an interest rate of 5.6%. Whilst Western Australian borrowers can already access finance with a 2% deposit through the State Government-owned lender Keystart, the Bankwest product is viewed as having more attractive lending conditions. This product is in addition to the existing 5% deposit loan product offered by Bankwest. Both of the low deposit loans from Bankwest are available nationally, which is also advantageous in the absence of Keystart outside of WA.

House prices in Sydney and Melbourne have increased for the second month in a row in early signs that these markets appear to be bouncing back following the Federal Election. Sydney and Melbourne dwelling values both recorded a rise in July of 0.2%. These follow the June increases which was the first monthly increase in Sydney since the market peaked in July 2017 and in Melbourne since its peak in November 2017. The August auction clearance rates in both cities were the highest in two years at over 76%. This provides cause for ongoing optimism that these markets are on track to return to normal conditions.

(Source: CoreLogic)