[HSC] Economist: 1 — 7 July

The week in review.

This week was headlined by another interest rate cut, which highlighted the RBA’s significant concern about the outlook for the Australian economy. However, there was some positive news, with another large trade surplus being recorded.

1. Interest Rate Decision

Statement By Philip Lowe, Governor: Monetary Policy Decision | Media Releases

For the second successive month, the Reserve Bank Board voted to lower the cash rate by 25 basis points — it is now at a record-low of 1.00%. Uncertainty surrounding the US-China trade war is dampening global growth and investment and many central banks are expected to ease monetary policy over the coming months.

Domestically, economic growth is considerably below the long-term average due to weak household consumption, which stems from low wages growth and falling house prices. Unemployment has risen slightly to 5.2%, and with inflation pressures remaining weak, the RBA is confident that a lower rate of unemployment can be maintained.

Today’s decision to lower the cash rate will help make further inroads into the spare capacity in the economy. It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target.

HSC Relevance

• The RBA Board cut the cash rate to 1.00% when they met earlier this week.
• The RBA hopes the lower cash rate will support low income earners through lower repayments, as well as improving international competitiveness via a lower exchange rate.

2. Balance of Trade

Photo by Peter Kleinau on Unsplash

5368.0 - International Trade in Goods and Services, Australia, May 2019

Australia’s balance on goods and services (BOGS) soared to a surplus of $6.089bn in trend terms in May, whilst the seasonally-adjusted figure was slightly lower at $5.745bn. Exports grew by four percent compared to the month prior, with the most significant driver being iron ore exports, which increased in value by $1.304bn (13%). On the other side of the ledger, imports rose by one percent, with capital goods up five percent across the month.

HSC Relevance

• Australia recorded yet another significant BOGS surplus in May, increasing the likelihood of the external sector making a positive contribution to second quarter economic growth.

Further Reading

Iron ore boom delivers a record $5.7b trade surplus

Rate cuts need to deliver optimism, not just cheaper home loans

And now for the good news... the economy is awful

Iron ore prices are booming now, but may be about to fall back, analysts say

Low rates are fine for borrowers but not pensioners

Australia's unique opportunity for an infrastructure revolution

Economy needs a boost, without an expensive hangover

Interest rates slashed to record low 1 per cent

Australia's economy is in the doldrums and infrastructure is failing to prop it up

This series of weekly articles aims to compile the important economic news of the week into bite-sized summaries with HSC-specific takeaways.
You can expect a new article every Sunday at 6pm!