Mining slowdown will help lower rates
The slowdown of the mining boom spells good things for the rest of Australia, according to an economist.
With two rate cuts expected, bringing the cash rate to an expected 2.5 per cent by mid year, AMP’s chief economist, Shane Oliver, told Smart Property Investment that this is partly in relation to the mining slowdown.
“In previous years, [the Reserve Bank] put a lot of emphasis on the mining sector, but more recently as mining is softening they’ll probably put more weight on the rest of the economy and bring it back to a balance.
“I think this shift back to a more balanced approach is probably the right thing for the country,” said Mr Oliver.
He explained that the Reserve Bank will start to look at reviving other industries, such as housing, to offset the downturn.
In his latest Oliver’s Insights, he noted that economic data had remained soft over the past two weeks, “with flat credit in November, a fall in house prices in December” and weaker indicators for manufacturing and services conditions.
“This is all consistent with the RBA still having more work to do on interest rates,” he said of his thoughts about the mid-year rate lows.
A cut to two per cent is, however, unlikely, due to the improving global economic outlook, “highlighted in particular by the rebound in the iron ore price up to around $US150 a tonne from a low in September of just $US85 a tonne”.