Australia’s Annual Economic Growth Forecast Further Reduced To 1.9%

At the start of this year, the annual gross domestic product for Australia was estimated at 2.7% by the financial analysts. Earlier this year, watching the Australian economy in shamble, the figure was reduced to 2.1% instead. Owing to the sluggish wages blended with the increasing debt that derives consumers’ struggle, however, forecast for Australia’s yearly GDP has been further curtailed to 1.9% ($1.29 trillion).

Analysts have also predicted that the economic growth for Australia can be expected to pick up slightly in the year 2020 and 2021. While the figure highlighted is 2.5% for the next two years, much better than the growth for the year 2019, it still lies well below 2.75% (the trend rate for annual economic growth).

Economic Growth Hits The Lowest In Almost A Decade

The lower than expected figures for economic data such as home building and consumer spending has been associated with the yearly low of 1.4% (lowest in almost a decade) for Australia’s economic growth. Economists have further added that investment plans in the country are taking a huge blow in light of the global economic slowdown.

The coping strategy for the Reserve Bank of Australia (RBA) under such an economic crisis has been the leniency in the monetary policy. Interest rates are currently at 0.75% that marks the lowest level in history. If the situation persists, RBA may have to opt for another rate cut to 0.5% instead, as depicted in the market pricing.

Prime Minister Scott Morrison, on the other hand, expressed his dissent for fiscal stimulus and have directed to keep the focus on delivering a budget surplus, as part of the conservative government’s political pledge.

Economic Response Following Rate Cut

The rate cut has been favorable in breaking the 2-year streak of falling home prices and the demand for housing is slowly starting to rise again. The consumer sentiment at large and investment plans, however, have not been revitalized so far.

CBA senior economist, Mr. Gareth Aird, however, holds an opinion that the rate cut may end up being more harmful to Australia’s economic growth in the long run as the household perception, in general, is negatively affected by it. He further added that increased volatility in the share market, U.S – China trade war, stricter fiscal policy, and weaker figures for local economic data are among a few of the other factors that are contributing to the sluggish economy.

Despite the rate cuts, however, the good news for Australia’s economy is that the core inflation is expected to remain at 1.6% throughout the year that is well below the 2-3% target that has been haunting the RBA for over two years. The headline inflation, as per the analysts, can be expected to rise to around 2% in the year 2020 and 2021.