‘Conflicting signals’ on economy: RBA

Reserve Bank Deputy Governor Guy Debelle says household spending has been “considerably weaker” than anticipated, but strength in the labour market means there are conflicting signals about the health of the Australian economy.

Mr Debelle told an audience in Adelaide that weak Sydney and Melbourne property markets had contributed to the lower-than-expected levels of consumption that have held back GDP growth to the point that economists are predicting as many as two cash rate cuts before the end of the year.

But unemployment fell to an eight-year low 4.9 per cent in February and, while that could be a lagging indicator, Mr Debelle told the American Chamber of Commerce in Australia event he believed it spoke of an underlying strength in the economy.

Allied to that, he said business sentiment remained healthy.

“At the same time, businesses continued to invest through the end of 2018 and have continued to hire into 2019,” Mr Debelle said.

“Why would they do this if growth in economic activity has slowed so much?”

The RBA has recently softened its tone while continuing to hold the cash rate at its record low 1.5 per cent, suggesting cuts could be on the table.

Mr Debelle on Wednesday acknowledged the future was unclear.

“I have highlighted the challenge in determining the current and future pace of growth in the economy posed by the conflicting signals provided by the labour market, the GDP data and the business surveys,” Mr Debelle said.

“How those tensions are resolved will play a critical role in whether we continue to make satisfactory progress in achieving the goals of full employment and the inflation target.”

By AAP

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