The Reserve Bank pulls a neat little trick in the first week of May each year – it publishes its best economic guesses a few days before the federal treasurer delivers his on budget night.
The thrust of the RBA and Treasury numbers differ little as they share each other’s homework as members of the Joint Economic Forecasting Group, but there can be definite differences in tone on occasion and some in detail.
With an election (and therefore tax cuts) to sell next Tuesday night, Treasurer Scott Morrison can be relied on to be absolutely optimistic about our economic outlook. A “Fistful of Dollars” and all that. The RBA has been more cautious in its optimism – the Governor doesn’t have to face an election.
The bank’s May 1 board meeting, with steady rates a foregone conclusion, is not the highlight of the week for the RBA-watching industry.
That honour belongs to the quarterly statement on monetary policy to be published on Friday. It’s this statement that contains the central bank mandarins’ economic outlook.
This week promises to be more interesting than many – and not just because of the budget four days later. There’s speculation the RBA might trim its optimism a little just when the government will be ramping up its rhetoric.
Three months ago, the RBA’s best guess was that economic growth would average a strong 3.25 per cent through 2018-19.
That’s a big jump from the 2.25 per cent GDP growth in the 2017 calendar year and the 2.75 per cent it had been hoping for this financial year. Part of the reason for the expected jump was the drag of reduced resources construction falling off the chart while (mainly state-driven) infrastructure construction grows and Australian consumers keep spending strongly.
It’s the last bit that is being questioned just when Mr Morrison needs the big growth story to justify tax cuts.
Record jobs growth has gone some of the way to counter real wages growth remaining stubbornly flat, but as the monthly RBA graph tracking household consumption and disposable income shows, the gap remains unfavourable.
Consumers’ confidence to keep spending at a greater rate because their income is growing is now being challenged by loss of the “wealth effect” – the idea that the housing most own or are paying off is making us forever richer anyway.
Friday’s statement on monetary policy will be watched closely for the RBA’s comments on the housing and consumer outlook. There’s likely to be considerably more qualification than we’ll hear in Mr Morrison’s speech.
That the Governor has already ruled out a rise in the bank’s cash rate any time soon means the bank can’t see the economy heating up nearly as much as the headline GDP prediction would normally suggest.
“Getting your retaliation in first”, to quote a great Irish rugby player, is a fine thing in economics.