Posted September 12, 2018 03:23:38 Australia’s banking industry is facing another round of uncertainty about its financial future.
Key points:The Reserve Bank of Australia (RBA) says it is keeping the RBA’s own estimates on the outlook for the Australian dollar, but also expects the economy to continue to contract this year, according to the Reserve Bank.RBA chief economist Brett Stevens says the Bank of England’s view on the future of the British pound is the best predictor of what the Australian economy will look like, and it will be “a long, hard slog”.
Stevens said it was also a case of trying to keep up with the changing nature of the economy.
“There’s always a bit of a change in economic circumstances, so you can’t always predict what’s going to happen in the economy and so the way we try to do that is to predict what the economy will be in a year’s time,” he said.
“The central bank is always going to be doing a lot of forecasting, but in this case they’re trying to predict in a way that they think is going to help us as an economy in the longer term.”
Stevens also said the Bank’s inflation forecast, which was last updated in September 2018, would remain the same in 2019.
“That inflation rate will remain unchanged, that’s what they’re forecasting, as they’ve always done,” he told the ABC.
“We expect the outlook will improve over time, but I think the best forecast is still in the long term, and that’s the inflation rate.”
The Reserve Banks outlook for inflation, the rate at which the economy expands and how long the Australian currency will be strong, is the biggest determinant of how the Australian financial system will be structured in the years ahead.
But Stevens said the RBB expected inflation to remain above the Bank forecast at around 3 per cent for the next four years, which is a big step up from the 2 per cent inflation forecast that the RBC published last year.
“It’s very difficult to say how long it’s going, because we don’t know when inflation is going, we don-T know how long inflation will be at, and the longer it is, the harder it will become to maintain the same level of growth that we’ve had over the past few years,” he added.
Stevens is also predicting a further slowdown in the Australian mining sector, as the government announces plans to impose a moratorium on the export of coal to other countries.
“They are expecting mining to be in decline and so a lot less mining will be going into the economy,” he explained.
“So the mining industry is going into a period of decline.”
Steven’s prediction on the size of the Australian workforce is also likely to change as the RSB prepares to release its latest forecast, due to be published on October 2.
The RBA has said it expects a small increase in the unemployment rate in 2019 to 2.7 per cent, with that forecast likely to be revised downwards as the economy recovers.
“When you look at the Australian labour market in 2019, it is forecast to be about 8 per cent lower than the level we had in 2019,” Stevens said.
He said this could result in a net reduction in the workforce of about 150,000 jobs by the end of 2019, which would be about 5 per cent below the RMB forecast.
“This is going on in spite of a pretty substantial reduction in unemployment and a lot more workers than the previous forecast,” he continued.
“If you look back at the forecast, it was pretty good.
It was a forecast that was not going to go much higher than the rate that we had forecast at the end.”
But Stevens warned that the unemployment figure could be “much higher” than that.
“A lot of the things that you’re looking at are things that are just not going into place,” he noted.
“As you get into 2019, as you’re working through your forecasting, there are a lot things that will be coming through and they’re going to have impacts on the economy.”
The RBB has forecast that there will be about 300,000 fewer jobs created in 2019 than the last forecast, although the RBS forecast a net increase in jobs.
Steven said the unemployment rates in Australia would be similar to those in the US and Europe, which had lower rates of unemployment.
“What we’ve seen is a very, very strong labour market, and a labour market that is very resilient, with many people getting jobs and getting jobs, and so it’s very, quite a resilient labour market,” he observed.
“In other words, there’s not a lot to worry about in terms of unemployment, it’s not the sort of thing that you might worry about as a country and a country of people who are working.”
But what happens if you get an event like a Brexit or a war, which brings in a lot people who have not had a job for a