Virus impact may force RBA to cut again

Risks facing Australian economy in 2020

As world share markets go into freefall as an ever-spreading coronavirus sparks fears of a potential global recession, the Reserve Bank of Australia could well cut interest rates this week to soften the impact.

The central bank’s board meets on Tuesday, a day ahead of the release of the latest quarterly economic growth figures, which economists expect will again show a sluggish expansion, even before the the outbreak of COVID-19.

JP Morgan chief economist Sally Auld has been forecasting further cash rate cuts by the Reserve Bank this year after its three reductions in 2019 to a record low 0.75 per cent.

“I think the risk is now that those come earlier than we had forecast, potentially as soon as (this) week,” Ms Auld told ABC television on Sunday.

“As the days and the weeks go on, it becomes very clear that the hit to growth here is probably going to be reasonably significant.”

The Morrison government has already indicated it will take “targeted action” to support parts of the economy that have felt the initial impact of the virus.

The tourism sector in particular faces losses running into billions of dollars due to the travel ban on Chinese visitors in an attempt to contain COVID-19.

Shadow treasurer Jim Chalmers is open to a stimulus package to assist the impact of the virus, but argues the economy has been in desperate need of support for some time.

“The economy has been weaker for much longer than the last few weeks,” he told ABC television’s Insiders program.

The national accounts for the December quarter are due on Wednesday, which will not include the full impact of this summer’s devastating bushfires either.

Economists at this stage expect the economy grew by a slim 0.4 per cent in the quarter, with some having marked down their predictions in the face of weak construction and business investment data last week.

While this will lift the annual rate to 2.0 per cent from 1.7 per cent as of the September quarter, it would still leave growth well below its long term trend.

Economists will finalise their forecasts after business, government spending and international trade figures early next week.

Treasury officials can be expected to be grilled on the growth result when they face Senate estimates on Thursday, having repeatedly had to downgrade their expectations in recent history.

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