'The rosiest picture in years'
Australia's economic indicators are all falling into place, says Peter Martin, adding that an interest rate cut on Tuesday is unlikely.PT3M45S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-2ww8x 620 349 November 4, 2013
Company profit expectations are their highest in 10 years, house prices are climbing the fastest since the start of the decade and the sharemarket has hit a five-year high.
Joe Hockey is looking prescient. Back in April the then shadow treasurer forecast ''a sense of optimism and hope if there is a change of government''.
Treasurer Joe Hockey addresses the media. Photo: Alex Ellinghausen
''I think companies will unleash their balance sheets, and I think consumers will as well,'' he told a business forum.
Consumer confidence is up 6 per cent since the change of government. The retail spending figures released on Monday by the Bureau of Statistics show a dramatic turn up. In July when Kevin Rudd replaced Julia Gillard as prime minister it climbed 0.1 per cent. In August as the election neared it climbed 0.5 per cent. In September with the election out of the way it surged 0.8 per cent. Much of it is due to lower interest rates. The Reserve Bank has cut interest rates three times in the past year, and cuts are said not to have their full effect for about 18 months.
The ABS house price index also released on Monday has climbed 1.9 per cent in the past month. Sydney is the standout, with prices up 3.6 per cent in the past month, 11.4 per cent over the year. Melbourne prices are up 1.9 per cent in the three months and 6.8 per cent over the year. Canberra, targeted by the Coalition for public service cuts, is one of only two cities in which house prices have slipped, sliding 1.2 per cent in the past three months. (Adelaide prices have slipped 0.6 per cent.)
AFG, Australia's biggest mortgage broker, says it processed more than $4 billion in home loans last month, its biggest month ever.
The ''sense of optimism'' (Hockey's words) is the main reason the Reserve Bank won't cut interest rates at its Melbourne Cup day meeting. It doesn't need to, even though it could. The TD Securities Melbourne Institute inflation gauge, also released on Monday, shows prices inching up just 0.1 per cent last month. There's scarcely any consumer price inflation. Even electricity prices are climbing at their slowest in six years. The Reserve has plenty of room to cut rates without endangering its inflation target.
Sure, the emerging recovery is fragile. Thursday's employment figures might be unpleasant. That's why Hockey promised in April he wouldn't rush to bring the budget back into surplus. ''We don't want to be the ones that close down that optimism,'' he said at the time. He's been true to his word.