ANZ group chief executive Mike Smith said he believes confidence is still an issue globally, despite clear signs the world’s biggest economy, the US, is recovering.
Offsetting the US outlook, Europe “is still pretty desperate” while Australia’s part of the world was much better off, he said. However, he noted that the issue for Australia was continuing political uncertainty.
Similarly, CBA group chief executive Ian Narev noted that the volatility of the global economy continues to undermine confidence, particularly the impact of lower commodity prices on national revenue.
“Weak confidence is a significant economic threat,” Mr Narev said at the release of the bank’s half-yearly results.
“Businesses need the certainty to invest to create jobs, and households need a greater feeling of security,” he said.
“That requires implementation of a coherent long-term plan that clearly addresses target government debt levels and timeframes, infrastructure priorities, foreign investment, business competitiveness policies and, above all, job creation.”
Australian economic data appears to be a mixed bag at the moment.
Rising unemployment, subdued business conditions and weak confidence are offset by strength in housing finance and house prices.
AMP Capital chief economist Shane Oliver noted a welcome rise in consumer confidence, but this was only to levels well below last year’s highs.
“While the rise in consumer confidence indicates that the recent rate cut has got traction the ongoing rising trend in unemployment is consistent with more interest rate cuts ahead,” Mr Oliver said.
Last year’s jawboning by the Reserve Bank on investor lending, high LVRs and interest-only mortgages appears to have taken a backseat to more pressing issues such as inflationary targets, the jobless rate and weak economic growth.
This was most clear in RBA governor Glenn Stevens’ parliamentary committee testimony, in which he made the following, critical announcement:
“Developments in the Sydney market remain concerning, but in the end we did not see these trends as overwhelming a case for a further easing in monetary policy that was made on more general grounds.”
In other words, there are bigger issues at hand than the bubbly Sydney property market; if more rate cuts further inflate Australia’s most expensive real estate market, then so be it.
AMP Capital’s Shane Oliver agrees the speech left the impression that the RBA has a clear easing bias: inflation is likely to remain low; growth is likely to remain sub-trend for longer, even assuming another cut in interest rates; home price strength is no barrier to rate cuts since it is concentrated in Sydney and APRA is adopting a tougher regulatory approach; and the Aussie dollar is expected to fall further.
“Our view remains that the RBA will cut rates by another 0.25 per cent in the next month or so,” Mr Oliver said.
“However, since the RBA’s downwardly revised growth forecasts already allow for one more rate cut, there is a high chance the RBA will end up going further and cut the cash rate below 2 per cent to provide confidence that growth will get back above trend next year."