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The Reserve Bank of Australia (RBA) has decided to maintain the cash rate at a record-low 2.00%.

The RBA explained that even though the economy grew, household spending is increasing, and exports are rising, there were still some problems that have to be tackled.

One such problem is the weakness in “business capital expenditure” (a fancy word for investments). Another is “slow growth in labour costs.”

Aside from that, RBA Governor Glenn Stevens stated in a June 10 speech that the RBA remains “open to the possibility of further policy easing.” So how is Australia’s economy doing lately? Time to find out!


Australia’s seasonally-adjusted Q1 2015 GDP grew by 2.3% (2.5% previous) year-on-year and 0.9% (0.5% previous) quarter-on-quarter, which is a good thing. But a closer look at the report tends to raise some eyebrows.

New private business investments at current prices, for example, decreased by 3.1% on a quarterly basis and a whopping 5.4% on a yearly basis.

The construction sector also contracted by 0.8% on a quarterly basis and 2.9%. These, among other things, have caused some analysts to forecast a sharp slowdown in the months ahead.

And to add fuel to the fire, the April trade balance report was also surprisingly worse-than-expected, posting a A$3.888B deficit (A$1.231B deficit previous) due to “coal, coke, and briquettes, down A$859m (22%) as a result of the temporary closure of ports due to severe weather conditions.”

This is apparently the largest deficit on record, breaking the A$3.881B deficit that was set way back in February 2008.


As I discussed in my piece on the Australian jobs data, Australia added 42K jobs and brought the jobless rate down to a one-year low of 6.0% from 6.1% while the labor force participation rate held steady at 64.8%.

Full-time jobs also increased by 14.7K while part-time jobs increased by 23.7K. I also pointed out that we’ve been seeing notable revisions in previous jobs data for some time now, and I referred to the budget cut and downsizing at the Australian Bureau of Statistics as a possible reason.

I guess what I’m trying to say is that we should take the very optimistic readings with a grain of salt.

Consumer Spending & Sentiment

Consumer sentiment fell by 6.9% to 95.3 in June, which is the “weakest read since the start of the year.”

Strangely enough, the “unemployment expectations index” increased by 3.8%, indicating that job loss is a major concern, even with the relatively healthy readings for employment data above.

It also seems like consumers are becoming more reluctant to spend, with the “time to buy a major household item” sub-index declining by 2.5% for June after May’s 1.0% decline.

This is confirmed by May retail sales posting no increase whatsoever (0.0% actual, 0.2% previous). Also, home loans for May slid down from 1.5% to 1.0%.

Business Conditions

The average Australian may not be a very happy camper, but what about businesses? Well, they’re doing well enough, actually.

The National Australia Bank’s (NAB) business confidence index for May climbed to seven points from three points, which implies increased optimism and is the highest level since August 2014.

The NAB business conditions index, meanwhile, also climbed to seven points from four points, indicating that businesses are performing slightly better.

Moving on, AIG’s manufacturing PMI went up to 52.3 from 48.0, while services PMI was less stellar at 49.6 (49.7 previous).


As I discussed in my Global Inflation Update, Australia reports its inflation data on a quarterly basis, and we won’t be getting Australia’s updated inflation reports until July 22. We do have the inflation data for Q1 2015, so let’s work with it.

The headline and core CPI were at odds with each other since annualized headline CPI declined to 1.3% from 1.7% while annualized core CPI increased to 2.3% from 2.1%.

The decrease in headline CPI can be attributed to the transport group, which declined by 3.4% during the reporting period, and the transport group’s decline was due to the 22.5% fall in automotive fuel.


Overall, Australia’s economy is doing okay for now, but future prospects are something else entirely.

The RBA’s decision to hold rates at record-low levels seems to be a prudent decision, but if “business capital expenditure” does not pick up or if consumer sentiment and spending deteriorate further, then the RBA’s openness to further easing may come into play.