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