Philip Lowe RBA 2018 economic data housing prices unemployment income
RBA governor Philip Lowe (Image: AAP/Dean Lewins)

Looking for a Christmas lift in the economy? Hoping the Yuletide season brings a spring in the step of the nation’s retailers and some summer optimism for the wider economy?

Well, it’s on the way — Christmas 2021, that is. That’s when the Reserve Bank reckons the economy will be warming up, at least enough to slow-cook a turkey. That’s if you can afford one.

As expected, the bank’s fourth Statement on Monetary Policy for the year, released on Friday, lowered growth, inflation and wage forecasts still further. The downgrade of wages growth was particularly disturbing — the RBA says wage growth is “no longer expected to pick up”, and in fact will fall from 2.3% to 2.2% over this calendar year. We’ll start to get a picture of how accurate that is on Wednesday when the September quarter WPI figures come out.

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The government will be desperately hoping that number is 2.251% instead of 2.249% so it can be rounded up to 2.3% to maintain the illusion that wage stagnation is just some passing fad and if workers wait a quarter or two, as the budget papers eternally predict, wages will “pick up”.

And Josh Frydenberg — apparently the treasurer whenever he is released from the undisclosed location he spends most of his time in — will be forced to perform the now time-honoured ritual of downgrading the budget WPI forecast in MYEFO in December. Indeed, the interesting part of MYEFO will be by how much Frydenberg is forced to downgrade his outright ridiculous 3.25% growth prediction for next financial year — the RBA lowered its WPI forecast to 2.3% all the way to December 2021.

The RBA also expects inflation to undershoot its 2-3% target over the next couple of years — it will still only be 1.9% by the end of 2021. Unemployment is forecast to stay above the bank’s approximate 4.5% goal, only hitting 4.9% by the end of 2021 (markets expect Thursday’s October Labour Force data to rise to 5.3% from 5.2%). GDP was also downgraded, to 2.3% by year’s end and 2.6% by the end of 2019-20. It won’t exceed 3% until late 2021. A year ago, the RBA thought growth would be well over 3% for as far as the eye could see.

The statement also slashed forecasts for dwelling investment, which is forecast to fall nearly 12% this year and cut back its forecast growth in public demand, with once-robust estimates for growth in public demand (driven by spending in areas like NDIS) now seen as below 3% a year.

Those have been the two key sources of employment growth over the last few years in Australia — no wonder unemployment is forecast to go nowhere fast and wages growth go nowhere at all.

As for retail, another of our major employers, the outlook is bleak: the bank cut its household disposable income forecast from 2.5% growth over the next eighteen months to below 2% over the next year and struggling to 2.3% by the end of 2020. There’s no Christmas boost big enough to protect retailers from the mauling wage stagnation and Morrison’s rocketing tax take is inflicting on them.

But if retailers can just hang in there, the RBA did upgrade its household income forecast to a mighty 3% — from 2.7% — by the end of 2021.

The third Christmas from now is shaping up as an OK one for the economy. But until then, we’ll just have to sit and enjoy the Great Morrison Stagnation.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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