RBA: Consumption is set to support above-trend growth - Westpac

Elliot Clarke, Research Analyst at Westpac, explains that according to the RBA, though the consumer is still seen as a ‘source of uncertainty’, the Board is more confident in the sector’s outlook.

Key Quotes

“In the RBA’s view, on the back of strong gains for employment and a nascent acceleration in wages growth, consumption is set to support above-trend growth through 2019 and 2020, along with strength in infrastructure investment and non-residential construction. With the savings rate near historic lows, this requires an acceleration in income growth to the 3.0% annual pace currently being seen for consumption.”

“We remain unconvinced on growth, instead anticipating that it will slow back to trend in 2019. Housing and the consumer are critical to this view. On housing, in contrast to the RBA, Westpac anticipates that GDP will be materially affected by declining residential investment – a trend increasingly evident in dwelling approvals.”

“On top of this investment effect, further declines in house prices will reduce household wealth and, we believe, impede consumers’ willingness to spend. Consumers’ spending capacity also continues to be restricted by a very modest wage uptrend, with full employment remaining elusive. The above outturn would clearly warrant the RBA remaining on hold not only through 2019, but also 2020.”