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ANZ slashes RBA cash rate forecast

Economists fear a rise in unemployment.

Economists fear a rise in unemployment. Photo: Andrew Quilty

ANZ has drastically cut its interest rate forecasts for next year, citing a sharp weakening in the mining sector, higher unemployment and the strong dollar as the rationale behind a drop of 100 basis points.

ANZ had forecast the Reserve Bank of Australia’s official cash rate to stay on hold at 3 per cent for all of 2013, but is now predicting a 25 basis point cut in each quarter, ending 2013 at 2 per cent. Among major banking institutions, ANZ now has the lowest forecast for interest rates, along with Macquarie Bank.

That means that the strongest sector is getting weak and the weak sectors are not getting better. 

The RBA, earlier this month, cut interest rates by 25 basis points, to 3 per cent, their lowest levels since the global financial crisis. If rates were to be cut by 100 basis points, they would reach a new Australian low.

‘‘It’s probably been evolving for a little while,’’ said Ivan Colhoun, ANZ head of economics & property research. ‘‘Since the RBA’s board meeting and the NAB business survey, we’ve been reviewing our forecasts.’’

Over the past quarter, a number of key indicators have begun to show growing weakness in Australia’s resource sector.

ANZ’s job ad index, a key indicator for the future jobs market, dropped 2.9 per cent in November, marking the eighth straight month of falls.

Mr Colhoun said a run of job advertisement drops over the past six months in Western Australia and Queensland pointed to a likely rise in unemployment in resource-reliant states.

On average in WA and Queensland, job ads have fallen 6 per cent and 4 per cent respectively each month for the second half of 2012.

Rising unemployment

Macquarie Bank senior economist Brian Redican said unemployment had been on the rise in non-mining sectors for some time, but until now those losses were offset by the increase of jobs during the mining boom.

Mr Redican said he expected the unemployment rate to climb above 6.5 per cent in 2013.

‘‘The same time as that, we’re not seeing a pick up in the non-mining sector being particular strong at all,’’ he said. ‘‘So that means that the strongest sector is getting weak and the weak sectors are not getting better, you end up getting a worse overall outcome.’’

A drop in capital expenditure numbers in November, which showed mining companies cutting their expected spending by 8.1 per cent or $9.6 million for 2013, signalled a further deterioration in the resources sector.

Retail sales have also come in weaker than expected, with the Australian Bureau of Statistics reporting flat sales in October, disappointing market predictions of a 0.4 per cent rise.

‘‘The same time as that, we’re not seeing a pick up in the non-mining sector being particular strong at all,’’ said Mr Colhoun. ‘‘So that means that the strongest sector is getting weak and the weak sectors are not getting better, you end up getting a worse overall outcome."

More positive outlook

Despite the views of ANZ and Macquarie Bank, HSBC maintains a positive outlook for the Australian economy, forecasting official rates to rise by 25 basis points, to 3.25 per cent, by the end of 2013.

HSBC chief economist Paul Bloxham said he expected the Australian economy to continue to rebalance, with the housing sector, along with retail sales to help fill some of the void left by the mining sector.

‘‘You’re going to see housing construction pick up [and] you’re going to see house prices rise next year. That will motivate some more retail sales as households look to fill those newly constructed houses with durable goods,’’ Mr Bloxham said.

57 comments

  • Wow.

    We'll be in uncharted waters at those low's.

    Higher unemployment and deteriorating economy.

    Wouldn't want to be a mortgage holder.

    Can everybody spell NEGATIVE EQUITY???

    hehe. Lovely.

    :)

    Commenter
    FONZ
    Date and time
    December 17, 2012, 2:52PM
    • Negative equity. A common term for those property investors post Feb 2009.

      Commenter
      Liberator
      Location
      SEQLD
      Date and time
      December 17, 2012, 3:39PM
    • If you remember the old Happy Days episodes you would know that the FONZ struggled with reading and maths

      All you investors out there would know that rate cuts have been welcomed over the past 15 months, on a 400k loan the 1.15% the Westpac has lowered rates have resulted in savings of $4600 PA in interest or close to $400 a month... another 0.80 drop (assuming the banks keep 0.20% for themselves) would mean an additional saving of $3200 PA or $360 a month

      Can FONZ spell POSITIVE GEARING

      Commenter
      Fonz couldn't count
      Location
      Melbourne
      Date and time
      December 17, 2012, 3:40PM
    • Can anybody spell Positively Geared and positive equity?

      My loan is 25% of its current value. So huge drops still wouldnt put me in negative equity.

      Upset?

      Commenter
      paul
      Location
      Sydney
      Date and time
      December 17, 2012, 3:45PM
    • Still, FONZ was the coolest. Still is. Anyone thinking Australia's economy will be rosy next year ain't Fonz.

      Commenter
      Jan
      Date and time
      December 17, 2012, 3:46PM
    • @FONZ - aka "broken record"

      If you'd bothered to read the whole article you'd have seen the following from the chief economist from HSBC:

      ‘‘You’re going to see housing construction pick up [and] you’re going to see house prices rise next year. That will motivate some more retail sales as households look to fill those newly constructed houses with durable goods,’’

      Considering that's the only reference to housing and house prices, your zealous comments look ridiculous. Besides, a drop in interest rates will make it easier to make mortgage repayments.

      Commenter
      Happy Dude
      Location
      BNE
      Date and time
      December 17, 2012, 3:49PM
    • No problem if you can afford it eeeehhhhhh

      Commenter
      max2
      Location
      melb
      Date and time
      December 17, 2012, 3:53PM
    • Auction clearance rates at about 60% always point to 10% annual growth in property values.
      Falling interest rates always lead to increase in property prices.

      ANZ is as wrong as it was in their previous forecast. If interest rates will stay above 0% for the next 6 months - we will be in a deep crisis. We are already in recession because our interest rates are much higher than in other developed countries.

      There is only one way out of the crisis = reviving home building. In this obscenely underpriced property market prices must go up 80-90% before people will be able to make any money out of the building.

      And we do not have the luxury to wait for this for more than couple of years. Property market is over ripe to go from slow steady growth to skyrocketing.

      Commenter
      dinkumnet
      Location
      dinkumnet.com
      Date and time
      December 17, 2012, 4:07PM
    • @
      Happy Dude
      LocationBNE
      Date and timeDecember 17, 2012, 3:49PM

      As silly and extreme as the Fonz's comments may be, the rise in unemployment to 6.5% next year is not exactly conducive to an increase in confidence that will result in an increased apetite for debt required to fuel such a housing recovery.

      Drops in interest rates will reduce mortgage repayments but that is completely irrelevant if you don't actually have a job.

      Also bear in mind that international financial sentiment also affects us here as individuals to the point where the benefits of more attractive interest rates locally may not in fact be enough to pull our eyes away from the train wrecks unfolding in Europe and the US. This is evident in the interest rate cuts to date having less than the desired effect with regard to housing construction.

      Sentiment may be reasonably argued to wane further next year with the tailing off of the resources boom which has economic ramifications for the east coast too. LNG will be the flavour of 2013 but operation of those projects is much less labor intensive than coal and ore extraction.

      So, if you can point me to the quantifiable evidence or trends that i've somehow overlooked indicating that we can enjoy capital gains next year or even a lift in sentiment that might tempt the Fonz to get a mortgage, please do share it.

      Commenter
      Mike
      Date and time
      December 17, 2012, 4:37PM
    • @ Mike

      Why don't you ask the HSBC chief economist Paul Bloxham?

      Commenter
      Happy Dude
      Location
      BNE
      Date and time
      December 17, 2012, 5:07PM

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