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Mixed messages from the economy

GDP growth suggests the economy is adjusting “extremely well” to the wind down in mining investment, but it’s not all smooth sailing ahead, according to AMP Capital.

News Michael Masterman 06 June 2014
— 1 minute read

AMP’s chief economist Shane Oliver highlighted increases in resource export volumes, housing construction and consumer spending in the March quarter as significant indicators of the economy’s successful rebalancing.

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However, Mr Oliver warned the rebalancing away from mining investment won’t be as smooth as the latest GDP data suggests.

“Growth is likely to slow back below trend in the short term as the hit to confidence from the May Budget flows through to consumer spending and the pace of growth in resource exports settles down,” he said.

“Softer April building approvals, albeit due to volatile multi-unit approvals, along with a fall in house prices in May, which likely signals slowing momentum in house prices and recent weakness in the iron ore price, also add a bit of short-term uncertainty.”

Given the diverse array of indicators currently being seen, the most likely outcome is an extended period of interest rates being left on hold, Mr Oliver said.

“Clear evidence the economy has been rebalancing has seen the number of economists looking for another rate cut dwindle to now just three, whereas the threats to growth from the Budget and the lower iron ore price means those looking for rate hikes are pushing them into 2015,” he said.

Mixed messages from the economy
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