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Anticipating a significant week for Australia’s economy: RBA rate decision and GDP figures

A significant week lies ahead for the Australian economy, investors, and consumers, featuring a Reserve Bank interest rate decision on Tuesday and the release of June quarter national accounts and GDP data the following day.

While the impact of the Reserve Bank’s decision is bound to receive more attention, the GDP and other data in the national accounts will provide insights into the economy’s performance throughout 2022-23, including the June quarter, and its positioning for the upcoming year.

Forecasts indicate that the central bank, in its final meeting under Reserve Bank Governor Philip Lowe, will maintain the cash rate at 4.1%. Despite weaker inflation in July, subdued wage growth, softer employment data, and a globally weaker business environment, the RBA is expected to maintain a wait-and-see stance, keeping interest rates unchanged for the third consecutive month.

Shane Oliver, Chief Economist at AMP, highlights that despite weaknesses, “inflation remains too high, services inflation risks being sticky, and the risks for wages growth are on the upside.”

While NAB economists anticipate no immediate rate rise from the RBA, they still foresee one final interest rate increase in November. However, recent data and communication have led to increased speculation that interest rates might have peaked.

Dr. Oliver suggests that the RBA may reiterate in its post-meeting statement that “some further tightening of monetary policy may be required.” Nonetheless, absent stronger-than-expected wages growth, a significant drop in unemployment, or a reversal of the inflation downtrend, interest rates are likely to remain unchanged for the rest of the year, with potential rate cuts in the following year.

Regarding June quarter GDP figures (Wednesday), Dr. Oliver expects a 0.4% quarter-on-quarter increase or an annual growth rate of 1.8%. He notes contributions from soft consumer spending, flat housing investment, moderate business investment growth, and public spending, with trade providing a 0.4 percentage point contribution following a 0.2 percentage point deduction in the previous quarter.

National Australia Bank economists project a 0.5% quarter-on-quarter increase and an annual growth rate of 1.9%. They anticipate a neutral outcome for household consumption, a small subtraction from dwelling investment, and gains in non-residential business investment and engineering construction.

This week’s economic data releases in Australia also include the Melbourne Institute’s Inflation Gauge, ANZ job ads, and business indicators on Monday, followed by the June quarter current accounts and government spending on Tuesday. July trade data on Thursday is expected to show a trade surplus of $9.7 billion.

In the US, a lighter week for data releases includes the services activity survey for August on Wednesday, which AMP’s Shane Oliver predicts will slightly decline from 52.7 to 52.3. The Bank of Canada’s expected decision to keep its key policy rate at 5% on Wednesday will mirror Australia’s stance. Furthermore, Chinese August trade data is likely to reveal a further decline in exports and imports on Thursday, while Saturday’s inflation data is expected to show China remaining in a deflationary state.

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