National diversified developer Fortis has officially launched Crest &amp; Walker, its latest Brisbane apartment development, with construction now underway on the 20-storey Newstead project.

Award-winning builder BINAH has commenced construction on the Bureau^Proberts-designed building, which will deliver a limited collection of 65 two and three-bedroom apartments on Kyabra Street.

[smartcode_project:default project_id=145922 project_image_fid=373556]

The project marks Fortis' fourth active residential development in Brisbane, following River House, which is nearing completion, alongside projects in New Farm and Hamilton as the national developer continues to expand its South East Queensland pipeline.

Fortis General Manager – Development Queensland Dan Boman said Crest &amp; Walker reflects the developer's long-term commitment to delivering design-led residential projects in Brisbane's established inner-city suburbs.

"We're proud to be strengthening our presence in Brisbane with Crest &amp; Walker, particularly in such a sought-after lifestyle destination as Newstead," Boman said.

"Every Fortis project is shaped by its context, and we approach each one with the respect and care it deserves.

"Our focus is always on creating places that feel connected to their neighbourhood and elevate the everyday experience for residents. Newstead continues to evolve as one of Brisbane's most sought-after urban communities, and Crest &amp; Walker reflects our ambition to contribute meaningfully to that story."

[smartcode_project:default project_id=145922 project_image_fid=373559]

Positioned between Gasworks Plaza and James Street, <a href="https://www.apartments.com.au/new-apartments/crest-walker-newstead-12-kyabra-street-newstead-qld-4006">Crest &amp; Walker</a> has been designed as a boutique residential address offering privacy and generous living spaces within one of Brisbane's most established lifestyle precincts.

The building features a contemporary brick podium softened by integrated landscaping, while the upper levels are characterised by restrained architecture and enduring materiality. Interiors have been designed to maximise natural light, acoustic performance and long-term liveability.

[smartcode_project:default project_id=145922 project_image_fid=373583]

Residences comprise spacious two and three-bedroom floorplans, with two-bedroom apartments priced from $1.55 million and three-bedroom, half-floor residences from $3.95 million.

Residents will have access to a wellness-focused rooftop featuring a swimming pool, sauna, steam room, landscaped dining spaces and outdoor lounge areas overlooking Newstead and the Brisbane CBD.

[smartcode_project:default project_id=145922 project_image_fid=373571]

Sales are being managed by Slaite Projects, with Fortis expecting strong demand from owner-occupiers seeking a high-quality, design-focused apartment in one of Brisbane's most tightly held inner-city suburbs.

Completion of Crest &amp; Walker is slated for late 2028.

[smartcode_project_cta:default project_id=145922]

Joel Robinson

Fortis expands Brisbane pipeline with launch of Crest & Walker in Newstead

The enormity of delivering a true skyscraper in Australia's new development market is often overlooked.

It has taken the best part of a decade since plans for Chevron One were first unveiled, but the 52-storey tower is now complete, with residents collecting their keys and moving into what has become one of the Gold Coast's most recognisable new landmarks.

Rising 127 metres above Chevron Island, Chevron One stands almost twice as high as any other building on the island. Its scale places it alongside the trio of towers at Jewel, arguably the last truly significant addition to the central Gold Coast skyline when they were completed around six years ago.

While there are several developments underway around a similar height to Chevron One, they are more concentrated within clusters of the highest towers in the city. The fact Chevron One sits within a developing precinct, looking back at the other high-rise developments in Surfers Paradise and Broadbeach, makes it a different proposition altogether. It will certainly become a reference point on the Gold Coast skyline.

[smartcode_project:default project_id=6515 project_image_fid=68833]

Developer Bensons Property Group is behind the 52-storey tower, which has just shy of 250 apartments, along with an exhaustive list of resident amenity spread across what is the largest development site ever assembled on Chevron Island.

The tower has been the talk of the town for years, says Ray White Projects Gold Coast agent Caitlin Rosenboom, who is selling the remaining apartments.

"People have been watching Chevron One go up for years," Rosenboom says, adding that many prospective buyers have been surprised by the scale of the views once they step inside.

"It's only when they walk through a completed apartment that they truly understand the position of the building," Rosenboom says.

"The views are jaw-dropping. Whether you're looking east over the ocean, across Surfers Paradise, along the river systems or out to the hinterland, every level offers something different but equally impressive."

[smartcode_project:default project_id=6515 project_image_fid=360215]

One of Chevron One's defining advantages is its location on the eastern side of Chevron Island on Stanhill Drive, a position which protects the views forever.

"There's only one row of houses between Chevron One and the water, and the height restrictions along the river means views from Chevron One can never be built out,"&nbsp;Rosenboom says.

While new apartment developments continue to emerge across the Gold Coast, Rosenboom says opportunities to secure a completed apartment with this level of outlook are becoming increasingly rare.

"The size of the site is something that would be incredibly difficult to replicate today," she says.

"That's allowed Chevron One to deliver the sort of amenity, open space and resident facilities that very few projects can offer. There are not many completed apartment buildings on the Gold Coast right now that can compete with the combination of scale, quality and amenity."

[smartcode_project:default project_id=6515 project_image_fid=68839]

There's around 2,000 sqm of amenity solely for the use of residents of Chevron One. Club One features a uniquely shaped swimming pool that mirrors the footprint of the building itself, set within a extensively landscaped gardens. There's also an indoor pool and spa, a fully equipped gym with a Pilates room, a yoga garden, a bookable private dining area and lounge that can host up to 30 people, and a 24-hour concierge service.

As for the buyers, Rosenboom is fielding enquiry from everywhere: Sydneysiders and Melburnians looking at the new and off-the-plan market following the changes in the Federal Budget, as well as those looking to relocate, through to South East Queenslanders seeking either a permanent home or a weekender bolthole.

"The Gold Coast lifestyle continues to resonate with people relocating from the southern states, and when they see the views and the quality of what's been delivered at Chevron One, it becomes very easy for them to understand the appeal," Rosenboom says.

A diverse mix of one, two and three-bedroom apartments remain available, with each offering "something a little different", be it the orientation and views, configuration, or level, to suit a wide variety of buyers.

The remaining apartments are ready to inspect in person, by appointment.

[smartcode_project_cta:default project_id=6515]

A decade in the making: Residents to move into Chevron One as construction wraps up

A general rule of thumb in new apartment developments is that the penthouses get the rooftop.

It's a formula that's become commonplace across Australia's apartment market. Residents might have access to a pool, gym or barbecue facilities on a dedicated lower level, but the most desirable outdoor spaces are typically reserved for the highest-priced homes at the top of the building.

<a href="https://www.apartments.com.au/developers/sherpa-property-group">Sherpa Property Group</a> has taken the opposite approach.

Rather than dedicating the rooftop to a handful of buyers, the Gold Coast developer has made it the centrepiece of its Flourish collection, creating expansive shared spaces from the best vantage point in the building.

The philosophy has reached its most ambitious expression at <a href="https://www.apartments.com.au/new-apartments/flourish-soleira-palm-beach-1150-1160-gold-coast-highway-palm-beach-qld-4221">Flourish Soleira</a> in Palm Beach, where two rooftop precincts connected by a skybridge will deliver one of the most extensive lifestyle offerings seen in a residential apartment project on the Gold Coast.

[smartcode_project:default project_id=150017 project_image_fid=374053]

"We're seeing a clear move toward developments that offer more than just an apartment," Sherpa Group founder Christie Leet said.

"People want spaces that support how they actually live, whether that's working from home, staying active, or spending time with family and friends.

"That's where amenity becomes critical. It's not just about what's included, but how those spaces are designed to be used every day."

[smartcode_project:default project_id=150017 project_image_fid=374052]

The breadth of amenity has already attracted buyers across multiple demographics. Younger first home buyers have been drawn to Soleira's one-bedroom apartments, a product rarely delivered in Palm Beach, while families have responded to practical inclusions such as the shallow children's pool adjoining the main lap pool and the extensive communal recreation areas.

Instead of a single rooftop, Soleira delivers two distinct lifestyle zones.

[smartcode_project:default project_id=150017 project_image_fid=372547]

The southern rooftop has been dedicated to wellness, featuring a gym, yoga and Pilates studio, work-from-home facilities, a wellness centre, spa, and hot and cold plunge pools.

The northern rooftop focuses on recreation and entertaining, incorporating a heated resort-style pool, private dining rooms, pizza ovens, barbecues, a golf simulator, children's recreation areas, and what is expected to be the Gold Coast's first rooftop basketball court, which will also double as a squash court.

[smartcode_project:default project_id=150017 project_image_fid=374054]

Beyond the rooftops, Soleira will introduce 1,500 sqm of curated retail beneath the towers, creating one of Palm Beach's first genuinely mixed-use lifestyle precincts where cafés, restaurants and convenience retail become part of residents' everyday lives.

Sherpa has also retained management rights across the development, allowing it to oversee the long-term operation of the building through a 24-hour concierge model. The developer is also exploring additional revenue streams within the precinct aimed at helping offset ongoing body corporate costs for residents.

[smartcode_project:default project_id=150017 project_image_fid=370962]

While Soleira is the largest project Sherpa has delivered, the rooftop-first philosophy has been evolving for several years.

It began with <a href="https://www.apartments.com.au/new-apartments/amargo-6-12-sixth-avenue-palm-beach-qld-4221">Flourish Amargo</a>, the first project released under the Flourish brand. Rather than competing at the ultra-luxury end of the market with oversized half-floor and full-floor residences, Sherpa focused on creating lifestyle-driven apartments supported by resort-style shared spaces.

Amargo introduced more than 800 sqm of rooftop amenity, combining wellness facilities, heated pools, entertaining areas, cabanas, pizza ovens and private dining spaces into what was designed as an extension of residents' homes rather than a facility used only occasionally.

[smartcode_project:default project_id=146527 project_image_fid=366550]

That approach continued with Flourish Oasis, where the same amenity-led philosophy was refined into a more boutique development. Strong demand from Sherpa's growing VIP database saw much of the project sold before it reached the broader market, reinforcing buyer appetite for apartment communities centred around shared lifestyle experiences.

Flourish Amargo is slated for completion mid-way-through next year, with Oasis to be delivered by late 2027. Flourish Soleira is expected to complete in 2030.

[smartcode_project_cta:default project_id=150017]

Sherpa takes amenity to the sky as Flourish Soleira captures booming Palm Beach demand

As apartment living continues to evolve across Sydney's growth corridors, the quality and distribution of shared spaces is increasingly shaping how residents experience home. Rather than functioning as add-ons, amenities are being embedded into the daily rhythm of a building, supporting everything from quiet retreat to social interaction, often within a single vertical community.

At <a href="https://www.apartments.com.au/new-apartments/aeris-melrose-park-nursery-street-melrose-park-nsw-2114">Aeris</a> in Melrose Park, this approach is resolved through a layered amenity offering that unfolds from ground level through to its upper podium. Developed by <a href="https://www.apartments.com.au/developers/sekisui-house-australia">Sekisui House Australia</a> in partnership with Hankyu Hanshin Properties, the project introduces 468 apartments across two towers and a mid-rise building, positioned at the highest point of the broader masterplan.

[smartcode_project:default project_id=426 project_image_fid=359199]

The amenity experience begins at street level, where two courtyards sit within a landscaped setting that connects residents to the wider network of parks and green spaces. These green spaces are not isolated pockets but part of a wider pedestrian network that links Aeris to the surrounding <a href="https://www.apartments.com.au/developments/melrose-park-nsw-2114">Melrose Park</a> precinct, including Central Park, future schools, and the Town Centre opening in July 2026. The result is a transition that moves from public to private without abrupt boundaries, allowing residents to pass through shaded, tree-lined environments before reaching the building itself.

Moving upward, the focus shifts to the level five podium, where the primary communal facilities are concentrated. This space brings together a 16-metre swimming pool, outdoor seating areas, and a communal BBQ zone arranged to take advantage of elevated outlooks. Seating is positioned beneath pergolas, creating pockets of shade that extend the usability of the space throughout the day. The pool edge aligns with views toward the wider district, reinforcing the sense of elevation that defines the project’s positioning.

In the adjacent building, this is complemented by quieter, more contemplative spaces, including an outdoor cinema set within the same level. Positioned to operate primarily in the evening, it introduces a different tempo to the shared environment, shifting from daytime activity to after-hours use without requiring separate zones.

[smartcode_project:default project_id=426 project_image_fid=360299]

The podium also accommodates an intimate private resident gym. Located on the lower levels, it gives residents convenient access to fitness facilities without leaving the building.

Above, the elevated podium sky deck extends the amenity offering, providing additional open-air spaces with elevated outlooks across the surrounding landscape. While more restrained in program, this upper level reinforces the project’s vertical progression, from ground-level greenery to elevated outlook, allowing residents to move between distinct spatial conditions within a single address.

This distribution of amenities reflects a deliberate response to how residents use space across the day. Sekisui House Australia Sales and Marketing Director Peter Kalaf points to the role these shared areas play in shaping buyer demand. Aeris has been conceived as more than a collection of apartments, with the podium pool, gym and outdoor cinema forming part of a broader lifestyle offering that extends the home beyond each individual residence.

[smartcode_project:default project_id=426 project_image_fid=360300]

What distinguishes Aeris is not the inclusion of these elements individually, but how they are arranged in relation to one another. Active, social, and passive spaces are layered vertically rather than separated, allowing residents to choose between them without leaving the building or moving far from their apartment. This proximity supports both routine use, such as a morning swim or evening workout, and more occasional gatherings, whether around the BBQ area or within the cinema setting.

The amenity design also sits within a broader framework of connectivity across Melrose Park. The Melrose Park Town Centre, anchored by Coles and Dan Murphys, features a mix of retail, dining, health and lifestyle offerings, bringing everyday convenience closer to residents. By the end of the year, more than five hectares of parks and open space, equivalent to around seven football fields of green space on residents' doorstep, will further enhance the precinct, allowing the internal facilities at Aeris to operate as an extension of the wider neighbourhood rather than a substitute for it.

Construction at Aeris continues to gather momentum, with ground floor slabs expected to be completed in late 2026 before the first sections of the buildings begin to rise above ground.

[smartcode_project_cta:default project_id=426]

Elevated amenity anchors daily life at Aeris, Melrose Park

Repeat buyers are one of the strongest measures of confidence in any apartment development.

At <a href="https://www.apartments.com.au/new-apartments/era-newcastle-west-124-126-bull-street-newcastle-west-nsw-2302">ERA</a> in Newcastle West, some purchasers are returning to <a href="https://www.apartments.com.au/developers/gwh">GWH</a> after living at the developer's One Apartments. Their decision to purchase again was driven by the quality of life they found after moving into their first GWH home.

Keith Wilton had spent years living in a house in East Maitland before deciding it was time for a change. Apartment living had always been on his radar, but he was selective about what he wanted.

<iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/FH_1EzB-1vs?si=XScVlP1ERsTDJoME" title="YouTube video player" width="560"></iframe>

"I had some boxes I wanted to tick," he says.

Keith points to the open-plan design, generous outdoor areas and considered inclusions as key reasons One Apartments worked for him.

“One of those things was a nice indoor open plan area, but also I wanted a nice outdoor open area that I could entertain on in summer or Christmases or birthdays,” he says.

He also found value in the smaller details, from integrated appliances to shared resident spaces including the pool, cinema and rooftop areas.

[smartcode_project:default project_id=135096 project_image_fid=356818]

After comparing several developments, he chose One Apartments because of GWH's longstanding local reputation and his own experience working with the developer on a commercial project more than a decade earlier.

"I knew that they were local, that the quality of the build was going to be up there. I'd looked at other apartment complexes around and close by, and I just knew that here was a better decision location wise."

Today, Keith says the move has completely changed how he experiences Newcastle.

"I enjoy living in this location because it's more of a lifestyle change. That Newcastle city living where you can walk to restaurants and bars and even beaches and parks and even shopping across the road."

[smartcode_project:default project_id=135096 project_image_fid=356828]

Beyond the location, he says it's the sense of community that has surprised him most.

"Everyone loves living here because they chose to live here, but everyone looks out for each other. It's a real great community feel here."

For Aimee and Lyle Goodman, the journey started almost by chance.

<iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/tsioMLcnjas?si=zq-ys3JuWpfa5hFv" title="YouTube video player" width="560"></iframe>

The couple happened to be having coffee in Newcastle when they noticed the site where One Apartments was about to begin construction.

"We were aware GWH was planning a development," Aimee says. "We made one phone call and things moved pretty quickly after that."

As busy business owners, they initially thought apartment living would simply reduce the maintenance that came with larger homes. Instead, it fundamentally changed how they spent time together.

"We actually catch up more as a family now," Aimee says.

"We've had homes with big yards and lots of space, but everyone ended up in different rooms. Here we'll have dinner together, the kids can play, and we spend far more quality time together."

[smartcode_project:default project_id=135096 project_image_fid=356829]

Lyle says their confidence came from GWH's reputation within Newcastle's building industry.

"I know people who've worked across different apartment projects, and whenever GWH came up the feedback was always the same. They're rock solid. They're quality."

That confidence only grew throughout the buying process.

"One of the things that really impressed us with GWH was the whole process, was the communication," Lyle says. "It was consistent, it was regular, there was no problem if we had some weird questions, there was no problems in getting answers."

[smartcode_project:default project_id=135096 project_image_fid=351104]

Aimee says one moment stood out.

"The project actually finished on time. We realised we needed to hurry up and sell our house because everything was happening exactly when they said it would."

The positive experience at One Apartments ultimately gave all three buyers the confidence to purchase again with GWH, this time at ERA.

Their confidence reflects what many buyers are seeking in today's apartment market. Location remains important, but so too does certainty around delivery, quality and long-term liveability.

[smartcode_project:default project_id=135096 project_image_fid=356822]

ERA builds on those foundations with 280 one, two and three-bedroom apartments across two landmark towers in <a href="https://www.apartments.com.au/developments/newcastle-west-nsw-2302">Newcastle West</a>.&nbsp;

Designed by <a href="https://www.apartments.com.au/architects/fk-australia">Fender Katsalidis</a>, the project will include more than 2,000 square metres of resident amenities, including a resort-style pool, gym, sauna, private cinema and rooftop entertaining spaces overlooking the harbour and coastline.&nbsp;

The development is also within walking distance of the Newcastle Interchange, Honeysuckle, Darby Street, the harbour foreshore, restaurants, retail and the city’s beaches, continuing the walkable lifestyle that existing GWH buyers say has transformed how they live.

[smartcode_project:default project_id=135096 project_image_fid=356826]

For Keith, the appeal remains straightforward.

"You feel at home even before you've moved into your home."

For Aimee, the change is measured in time.

“I just felt like I had more time,” she says.

[smartcode_project:default project_id=135096 project_image_fid=351102]

Construction at ERA is now underway, with more than half of the residences already sold and limited two and three-bedroom apartments remaining in the East Tower release. Priced from $980,000 for two-bedroom residences and $1.46 million for three-bedroom residences, buyers can secure an apartment with a 10 per cent deposit, with premium homes offering ocean views from Level 8 and harbour views from Level 10.

ERA is also backed by Resilience Insurance's 10-year Latent Defects Insurance policy, providing protection against structural or waterproofing defects for 10 years after completion. The project is anticipated to be completed in early 2028.

[smartcode_project_cta:default project_id=135096]

From ONE to ERA: Why buyers are choosing GWH again in Newcastle West

Rba Rate Decision

<html><body>
EXPERT OBSERVATION
Our central forecast is for the Australian economy to expand by 2½ per cent this year and 2¾ per cent over 2020.
The growth forecast for this year has been revised down since we met six months ago, but the forecast for next year is unchanged.
The downward revision this year mainly reflects weak consumption growth.
It has become increasingly clear that the extended period of unusually slow growth in household incomes has been weighing on household spending, as has the adjustment in the housing market.
Given this experience, the outlook for consumption continues to be the main domestic source of forecast uncertainty.
Even so, looking ahead, there are signs the economy may have reached a gentle turning point.
Consistent with this, we are expecting the quarterly GDP growth outcomes to strengthen gradually after a run of disappointing numbers.
This outlook is supported by a number of developments including: lower interest rates, the recent tax cuts, a depreciation of the Australian dollar, a brighter outlook for investment in the resources sector, some stabilisation of the housing market and ongoing high levels of investment in infrastructure.
It is reasonable to expect that, together, these factors will see growth in the Australian economy return to around its trend rate next year.
The major uncertainty continues to be the trade and technology disputes between the United States and China. These disputes pose a significant risk to the global economy. Not only are they disrupting trade flows, but they are also generating considerable uncertainty for many businesses around the world.
Worryingly, this uncertainty is leading to investment plans being postponed or reconsidered. It is also now generating volatility in financial markets and has increased the prospects of monetary easing in many countries. This means that we have a lot riding on these disputes being resolved.
Turning now to the Australian labour market, the unemployment rate, at 5.2 per cent, is a little higher than when we met six months ago. This is despite employment growth having been stronger than we had expected. What has happened is that increased demand for labour has been met with more labour supply, especially by women and older Australians.
Reflecting this, a higher share of the Australian adult population is participating in the labour market than ever before. This is good news. But one side-effect of this flexibility of labour supply is that it is harder to generate a tight labour market and so, in turn, it is harder to generate a material lift in aggregate wages growth.
Looking forward, while some slowing in employment growth is expected, the central scenario is for the unemployment rate to move lower to reach 5 per cent again in 2021. If things evolve in line with this central scenario, it is probable that we will still have spare capacity in the labour market for a while yet, especially taking into account underemployment.
This means that the upward pressure on wages growth over the next couple of years is likely to be only quite modest, and less than we were earlier expecting.
Caps on wages growth in public sectors right across the country are another factor contributing to the subdued wage outcomes. At the aggregate level, my view is that a further pick-up in wages growth is both affordable and desirable.
Turning now to inflation, the June quarter outcome was broadly in line with expectations, after a run of lower-than-expected numbers in earlier quarters. Over the year to June, inflation was 1.6 per cent, in both headline and underlying terms, extending the period over which inflation has been below the 2–3 per cent medium-term target range.
The Reserve Bank Board remains committed to having inflation return to this range, but it is taking longer than earlier expected.
There are a few factors that I would highlight as contributing to the low inflation outcome over the past year.
\These are: the slow growth in wages; the ongoing spare capacity in the economy; various government initiatives to address cost-of-living pressures on households; and the adjustment in the housing market, which has contributed to unusually low increases in rents and declines in the price of building a new home in some cities.
Working in the other direction, the drought and the depreciation of the exchange rate have been pushing some prices up.
Looking ahead, inflation is still expected to pick up, but the date at which it is expected to be back at 2 per cent has been pushed out again. Over 2020, inflation is forecast to be a little under 2 per cent and over 2021 it is expected to be a little above 2 per cent.
These comments were made during the <a href="https://www.rba.gov.au/speeches/2019/sp-gov-2019-08-09" target="_blank">opening statement</a> to the House of Representatives Standing Committee on Economics.
PHILIP LOWE is the current Governor of the RBA
</body></html>

j.ballantyne1990-6AQqhLzZaK

Australian economy may have reached a gentle turning point: Philip Lowe

<html><body>
The RBA kept rates on hold at the August meeting, following back to back rate cuts to bring the official cash rate down to a record low one percent.
It had previously stood at a historic low 1.5% before the latest cuts. The rate hadn't been cut since August 2016 when it was brought down from 1.75%.
Today the RBA have released their chart pack, which highlights key factors in the Australian economy.
Property Observer takes a look at four key charts which will have been strong influencers in the decision to cut the official interest rate.
Consumer Price Inflation ticked up slightly
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/8/8/Consumer%20Price%20Inflation%20RBA.jpg" alt="">
Australia's Consumer Price Index rose 0.6 percent over the June quarter, slightly higher than expectations. 
The CPI rose 1.6 per cent through the year to the June quarter 2019, after increasing 1.3 per cent through the year to the March quarter.
Westpac had been <a href="/expert-insights/investing/cpi-forecast-to-rise-for-june-quarter-westpacs-justin-smirk">forecasting a 0.5% rise</a> in the June quarter CPI, taking the annual pace to a 1.5% rise from 1.3%.
IFM economist Alex Joiner says the figures were a slight upside surprise, however it is inline with expectations on core measures. 
Household disposable income rose slightly, but it's not translating into increased consumption yet.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/8/8/Household%20Income%20and%20Consumption%20RBA.jpg" alt="">
Disposable income has bucked its steady, ongoing decline after it nearly hit 0%. 
Consumption has carried on declining, but the RBA will be keen to see disposable income rise given the recent rate cuts.
Consumer sentiment continues to rise
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/8/8/Consumer%20sentiment%20RBA.jpg" alt="">
Consumer sentiment continued its upward trend following the federal election outcome having dipped below the average index earlier in the year.
It is now equalling, and bettering, levels in boom time 2015 and 2016.
Housing prices starts to rebound.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/8/8/Housing%20Prices%20RBA.jpg" alt="">
House prices have started to stabilise after a long downward trend which saw them approach 10% declines.
Statistics from the ABS, APM, Residex and CoreLogic all show a turnaround.
To download the full chart pack in full, <a href="https://www.rba.gov.au/chart-pack/pdf/chart-pack.pdf?v=2019-08-08-09-10-56" target="_blank">click here</a>.
 
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The four charts that prompted the RBA keep rates on hold in August

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EXPERT OBSERVER
The RBA remained on hold at a record low cash rate of 1% at its August board meeting as widely expected. This followed 0.25% rate cuts in June and July.
The Bank’s post meeting statement was dovish:
<ul type="disc">
<li>referring to the downside risks to global growth from the trade war;</li>
<li>revising down yet again its GDP growth forecast to around 2.5% for this year (from 2.75%);</li>
<li>noting that wages growth remains subdued with little upwards pressure; and</li>
<li>indicating that inflation will take longer than earlier expected to reach 2%.</li>
</ul>
The final paragraph repeated Governor Lowe’s recently used forward guidance to expect an “extended period of low interest rates” and noted that the Board stands ready to ease monetary policy again if needed, indicating that the Bank retains an easing bias.
For now the RBA is in wait and see mode – basically waiting to see what sort of boost to growth the rate cuts of June and July and the Federal Government’s tax cuts for low and middle income earners provide.  Baring a shock to the economy this is likely to remain the case for a few months.
However, while the rate cuts seen so far and the Federal Government’s tax cuts will help, we see unemployment drifting up to around 5.5% by year end in contrast to the RBA’s expectation for a fall to around 5% over the next couple of years. The stimulus to date won’t be enough to get wages growth up and inflation back to target and so we expect the RBA to resume cutting rate later this year with 0.25% cuts in each of November and February.
Help from more fiscal stimulus and structural reforms is needed but this will take time to come through and impact the economy so the pressure remains on the RBA in the short term. And the escalating US/China trade war adds to this pressure to the extent that it threatens demand for Australian exports and business confidence locally.
DR SHANE OLIVER is the Head of Investment Strategy and Chief Economist at AMP Capital.
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RBA on hold but expect cash rate of 0.5% by February 2020

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EXPERT OBSERVATION
The Reserve Bank of Australia (RBA) has made the decision to leave the nation’s official cash rate unchanged at 1.00%.
The Reserve Bank’s decision to hold the cash rate steady this month was prudent. A third cut so soon after two consecutive cuts in June and July would not have given policy makers enough time to see if the cuts had any marked effect on the economy.
The latest economic data has provided the Reserve Bank with no incentive to reduce the cash rate three times in as many months, encouraging the Bank to continue its historically cautious approach towards monetary policy.
In encouraging news for the housing market, the latest CoreLogic Hedonic Home Value Index revealed that national dwelling values stabilised in July as five of the eight capital cities recorded a rise, supported by a 0.2% increase in values in both Sydney and Melbourne.
It seems that two consecutive cuts to the cash rate, and tax relief from the Government were not enough to improve consumer outlook. The Westpac Melbourne Institute of Consumer Sentiment revealed that consumer sentiment deteriorated in July, as concerns over the economy continue to weigh heavily on sentiment. On a positive note, the index revealed that housing-related sentiment improved in response to lower interest rates.
The latest monthly business survey from the National Australia Bank revealed that business confidence fell over June and while business conditions rose, they remain well below average. The survey also revealed that outlook for business conditions over the next few months is weak, which may put further downward pressure on the labour market going forward.
In the minutes of its July Board meeting, RBA board members suggested they continue to track developments in the labour market. Members agreed that the Australian economy could sustain a lower rate of unemployment, while achieving inflation consistent with the target.
Given that the unemployment rate remained steady at 5.2% in the ABS’ most recent Labour Force Survey, the RBA may not have felt another cut was necessary at this time. That being said, the inflation rate came in under the RBA’s expectations once more, with June quarter figures revealing a CPI quarterly percentage change of 0.6% and a year ended percentage change of 1.6%, well below the RBA’s target range of 2-3%. While financial markets are expecting another 25 basis point cut this year, the important thing for borrowers and future borrowers alike to keep in mind is that interest rates are currently sitting at historic lows. I would encourage anyone thinking of buying a home or investment property to speak to their local Mortgage Choice mortgage broker to learn what their borrowing power is and what home loan options are available to them. Mortgage Choice brokers can assess your financial situation, and help you get home buying ready. With access to a panel of over 25 lenders, with varied lending policies and preferences, we can help borrowers get the most suitable deal for their circumstances, whatever the cash rate.
SUSAN MITCHELL is the Mortgage Choice CEO
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RBA hits pause in August: Mortgage Choice's Susan Mitchell

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At its meeting today, the Board decided to leave the cash rate unchanged at 1.00 per cent.
The outlook for the global economy remains reasonable. However, the increased uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy remain tilted to the downside. In most advanced economies, unemployment rates are low and wages growth has picked up, although inflation remains low. The slowdown in global trade has contributed to slower growth in Asia. In China, the authorities have taken steps to support the economy, while continuing to address risks in the financial system.
Global financial conditions remain accommodative. The persistent downside risks to the global economy combined with subdued inflation have led a number of central banks to reduce interest rates this year and further monetary easing is widely expected. Long-term government bond yields have declined further and are at record lows in many countries, including Australia. Borrowing rates for both businesses and households are also at historically low levels. The Australian dollar is at its lowest level of recent times.
Economic growth in Australia over the first half of this year has been lower than earlier expected, with household consumption weighed down by a protracted period of low income growth and declining housing prices. Looking forward, growth in Australia is expected to strengthen gradually from here. The central scenario is for the Australian economy to grow by around 2½ per cent over 2019 and 2¾ per cent over 2020. The outlook is being supported by the low level of interest rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilisation in some housing markets and a brighter outlook for the resources sector. The main domestic uncertainty continues to be the outlook for consumption, although a pick-up in growth in household disposable income and a stabilisation of the housing market are expected to support spending.
Employment has grown strongly over recent years and labour force participation is at a record high. There has, however, been little inroad into the spare capacity in the labour market recently, with the unemployment rate having risen slightly to 5.2 per cent. The unemployment rate is expected to decline over the next couple of years to around 5 per cent. Wages growth remains subdued and there is little upward pressure at present, with strong labour demand being met by more supply. Caps on wages growth are also affecting public-sector pay outcomes across the country. A further gradual lift in wages growth would be a welcome development. Taken together, recent labour market outcomes suggest that the Australian economy can sustain lower rates of unemployment and underemployment.
The recent inflation data were broadly as expected and confirmed that inflation pressures remain subdued across much of the economy. Over the year to the June quarter, inflation was 1.6 per cent in both headline and underlying terms. The central scenario remains for inflation to increase gradually, but it is likely to take longer than earlier expected for inflation to return to 2 per cent. In both headline and underlying terms, inflation is expected to be a little under 2 per cent over 2020 and a little above 2 per cent over 2021.
Conditions in most housing markets remain soft, although there are some signs of a turnaround, especially in Sydney and Melbourne. Growth in housing credit remains low. Demand for credit by investors continues to be subdued and credit conditions, especially for small and medium-sized businesses, remain tight. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality.
It is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieve more assured progress towards the inflation target. The Board will continue to monitor developments in the labour market closely and ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time.
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Most housing markets remain soft: RBA Governor Philip Lowe's August 2019 meeting statement

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The RBA has held the cash rate at a record low one percent at its August meeting.
The decision follows slightly <a href="/expert-insights/investing/cpi-rises-0-6-percent-in-june-quarter">higher inflation than predicted</a> for Q2 2019.
RBA Governor Philip Lowe said most housing markets remain soft, although there are some signs of a turnaround, especially in Sydney and Melbourne.
CoreLogic's head of research Tim Lawless says the decision to hold the cash rate was expected.
"The pause in the cutting cycle will give the RBA time to assess the effects of earlier rate cuts on the economy and consumer spending, however there is a strong likelihood of at least one more cut later this year," Lawless says.
"The housing market has been a key beneficiary of lower mortgage rates, with a trend towards stability over the first half of the year converting to a subtle rise in capital city housing values in July. 
"With mortgage rates set to remain low for an extended period of time, as flagged by RBA Governor Lowe in a speech last month, and potentially move even lower later this year, we are expecting to see the housing market move into a gradual recovery, however with credit policies remaining tight and economic uncertainty still elevated, we aren’t expecting a material acceleration in housing activity or housing values."
Finder's latest RBA Survey found that economists and experts predicted small gains across every capital city market.
Graham Cooke, insights manager at Finder, said it's too soon to tell if this is an emerging recovery in the housing market or merely a 'dead-cat bounce'.
“In finance, the saying is that even a dead cat will bounce if it falls from great heights," Cooke says.
“Most economists surveyed foresee small levels of growth across the board, but a few tipped prices to tumble, especially in Sydney and Melbourne where one expert predicted a 7% drop.
“Whether you see this as a falling feline or the beginning of a true rebound, it’s clear that the full effects of the RBA’s recent cuts have yet to play out.
<img src="https://gallery.mailchimp.com/cc5e9bce699fa1d71a67cf499/images/881b878c-2e84-4824-9ea6-abb2854b4aa9.png" width="610" height="443">
“However, after one of the strongest weekend clearance rates in Sydney in recent months (71%), there is definitely a detectable pulse,” Cooke said.
Canberra is expected to be the best performer with 2.27% gains. Sydney and Melbourne are looking at 1.48% and $1.57% gains respectively.
Cooke said those considering getting on the property ladder need to get their ducks in a row.
“Prospective first time buyers should look at arranging pre<a href="https://finder.us9.list-manage.com/track/click?u=cc5e9bce699fa1d71a67cf499&amp;id=72671b9013&amp;e=f2176dbcf8" target="_blank">-</a>approval for finance soon if they want to take advantage of low rates before prices increase.”
<div><img src="https://gallery.mailchimp.com/cc5e9bce699fa1d71a67cf499/images/2027eefe-611e-46ff-974f-dd622ad3779f.png" width="613" height="445"></div>
<div>
 
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RBA holds rates after two consecutive cuts

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The Reserve Bank of Australia (RBA) is set to return to a holding pattern, leaving the cash rate at 1.00%, according to the latest survey data from Finder.com.au.
In the latest Finder RBA Cash Rate Survey™ 44 of the 46 experts and economists (96%) predict the board will hold at the August meeting to let the June and July cuts trickle through the economy.
Almost all experts (92%, 38) expect the next cash rate move will be a cut. Nearly half (49%, 21) are predicting a final low of 0.50%, while a third (35%, 15) tip believe it will bottom out at 0.75%.
But the holding pattern may not last long; the most popular months cited for another cash rate cut are November (35%, 17) followed by October (23%, 11).
Graham Cooke, insights manager at Finder, said with the effects of recent cuts still unrealised, the board is hesitant to cut in three consecutive months.
“The jury’s out on the impact of these most recent cuts – it’s simply too soon to tell.
“Economists feel slightly more confident that recent cuts will have a positive effect on the economy once given time to roll out. While positivity is generally still low, housing affordability remains the most positive economic element.” 
<img src="https://www.urban.com.au/images/2019/8/5/Finder%20-%20August%206%20-%201.JPG" alt="">
“The falling cash rate combined with falling house prices creates a catch-22 for Aussies looking to break into the property market. Buyers will be wanting to take advantage of historically low rates, but also wanting to purchase at the bottom of the market.”
Despite US rate cut, economists are focused on China When asked to indicate their two main economic concerns for Australia right now, decisions by the Federal Reserve in the US ranked towards the bottom of the list, being cited by just three economists (5%).
(Note: some responses were submitted just before the first US cash rate cut since 2008, which saw its lending rate fall to 2.25%.)
Instead, (27%, cited by 17 respondents) experts tipped international relations like the fate of US-China Trade Deal and Australian-Chinese trade in general (14%, 9) as massive concerns for the economy, above issues like unemployment, inflation and housing prices.
“What’s happening between China, Australia and the US right now could have far more potential impact on Australia than the Fed Reserve,” Cooke said.
“If the US and China can finally agree on a trade deal, this may result in US imports replacing Australian ones in some Chinese sectors.
“With Australian beef and dairy being particularly strong trade commodities in this space right now, such a deal could be bad for Aussie farmers, and ultimately our economy.”
Peter Boehm of KVB Kunlun said domestic concerns are just part of the equation.
“The impact of international trade negotiations will also play an important role in determining the need or otherwise for another rate adjustment.”
<img src="https://www.urban.com.au/images/2019/8/5/Finder%20-%20August%206%20-%202.JPG" alt="">
Results from Finder’s Economic Sentiment Tracker™, which gauges five key indicators – housing affordability, employment, wage growth, cost of living and household debt – show nearly all tipped more positive this month following the second rate cut.
Introduced in March 2018, this month’s tracker set an all-time low for economic sentiment in cost of living (3%).
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Cash rate will hold meanwhile concerns over China-US relations grow

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EXPERT OBSERVER
The RBA meets on August 6 and releases the Statement on Monetary Policy on August 9. We think it is quite unlikely that the Board will decide to do a third consecutive cut at this meeting but remain comfortable with our view that the RBA will deliver additional 25bps cuts in October and February.
The Reserve Bank Board meets on August 6 to consider whether to extend the sequence of rate cuts in June and July for another month.
We think it is quite unlikely that the Board will decide to do a third consecutive cut at this meeting.
Following the cut in July, the Governor noted, “The Board will continue to monitor developments in the labour market closely and adjust monetary policy if needed to support sustainable growth in the economy and the achievement of the inflation target over time".
That statement compared with the June statement, “The Board will continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time".
The inclusion of the term “if needed” in the July statement indicates that the level of urgency for the next cut is lower in July than it was in June – implying that some time would be required to assess whether another cut was needed.
I wrote at the time of the release of the July Board minutes: “my experience is that when a central bank decides to pause, it often refers back to previous policy decisions. In the final paragraph of the July minutes, the Board notes “this decision, together with the reduction in the cash rate decided at the previous meeting, would assist in reducing spare capacity in the economy”.
Finally it is worth recalling the final paragraph of the speech which the Governor delivered after the Darwin Board meeting in July when he noted: “So we will be closely monitoring how things evolve over coming months.” The use of the plural (months) seems to be confirmation that there would be no urgency to move as soon as August.
On July 25th, we revised our forecast of the timing of the next rate cut from November to October. In addition we extended the easing cycle to include another, and final, cut, in February next year. We remain comfortable with that view.
The Governor’s Statement next week will be of interest particularly around whether he is planning to move as soon as September. Here we will certainly be interested in whether he persists with the “if needed” qualification. We favour that term still being used implying that, at least at the time of the meeting, the Board expects to hold fire in September.
Other themes will be consistent with the July statement are: strong employment growth but spare capacity in the labour market; housing conditions soft, although tentative signs of stabilisation in Sydney and Melbourne (CoreLogic reported house prices in Sydney and Melbourne lifted by 0.2% in July); inflation pressures subdued, although the central scenario remaining for trimmed mean inflation to be 2% in 2020; and the central scenario remaining for growth to be around trend.
These themes will give us an early signal of the revised forecasts for growth, inflation and unemployment which will be released with the August Statement on Monetary Policy on August 9. These forecasts are critical for gauging the Bank’s approach to policy and he will be testifying to Parliament that same morning.
Recall that when the last set of forecasts was released in May, the RBA forecast GDP growth at 2.75% in both 2019 and 2020. That is a benign outlook given that “trend” is assessed as 2.75%. However it is going to be difficult to credibly maintain the 2019 growth forecast at 2.75%.
Since the May Forecasts were released, GDP growth in the March quarter printed a low 0.4% and the partials for the June quarter are pointing to around 0.5%. A 0.9% read for the first half of the year requires 0.9% quarterly increases in each of the last two quarters.
Now we acknowledge that the second half of 2019 will be stronger than the first half with the benefits of the rate cuts, tax cuts, stabilising of the housing markets in Sydney and Melbourne, and lower AUD; but we certainly do not see growth lifting to an annualised pace outside 2.5-3.0%. It is most likely that the RBA will choose the 3% pace and lower the forecast for GDP growth in 2019 to 2.5% from 2.75%. That would provide a credible base for retaining the 2.75% forecast in 2020. We see the pace at nearer 2.5% in 2019 H2, ultimately pushing the RBA's forecast for 2019 back to 2.25% and 2020 to around 2.5%.
The June quarter Inflation Report provided the RBA with some welcome news. The trimmed mean inflation rate for the quarter printed 0.42%, above the Westpac forecast of 0.3%. This followed a 0.3% in the March quarter. We detected a stronger than expected pass through in clothing, footwear, household goods and cars from the low AUD.
With 0.3% in Q1 followed by 0.42% in Q2, the RBA can, with a large stretch, retain its forecast for the trimmed mean of 1.75% for 2019, making a drift up to 2% in 2020 a reasonable outcome. We expect the trimmed mean in the September quarter to print 0.3% for a rounded 1.5% for 2019. The RBA is likely to confront that reality for the November Statement, forcing it to delay the return of the trimmed mean inflation rate to 2% in 2021. For now, it will most likely continue to declare that trimmed mean inflation will be back within the 2-3% band in 2020.
So far, so good, but the unemployment rate forecast is likely to be a major problem for the RBA. Recall that in May, it forecast the unemployment rate to hold at 5.0% through 2019 and 2020. Unfortunately the rate for June has lifted to 5.24% against a May SOMP forecast of 5.0%. The problem is compounded by the 'rule-of-thumb' amongst economists that above trend growth is required to lower the unemployment rate. At best, the RBA will be forecasting trend growth in 2020, challenging any forecast that the unemployment rate will fall from the current 5.25%.
It will be this tension with the unemployment rate, which we expect to lift to 5.4% by year’s end that will trigger that 0.25% rate cut in October.
This problem will be further complicated for the RBA by market pricing. The forecasts in May already incorporated the two rate cuts in June and July (although markets were envisaging the cuts to come later in the year). The forecasts in August will incorporate a further cut in October (market pricing) and a near full second cut by mid-2020.
If, as we expect, those forecasts will be barely acceptable for growth and inflation and well below the RBA’s “desired” 4.5% for the unemployment rate, then the very least that the RBA can do is to deliver a 25bp October cut and plan to repeat the dose in 2020 H1.
BILL EVANS is the Chief Economist at Westpac
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RBA to hold in August but further cuts forecast in 2019 and early 2020: Bill Evans

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EXPERT OBSERVER
Tuesday, 2 July saw the Reserve Bank of Australia ease rates again by 25bp to 1%, the second such easing in consecutive months and to a record low. 
The RBA argues it is needed to “support employment growth and provide greater confidence that inflation will be consistent with the medium-term target”. The RBA is also uncertain about the “trade and technology disputes…affecting investment and means that the risks to the global economy are tilted to the downside”. The RBA is sending a clear message that it wants the economy to tighten up on spare capacity to weather any storms in the future.
However perhaps the underlying reasoning could be the continuing benign economic growth at 1.8% (below trend), subdued consumption due to protracted low wage and income growth and declining house prices (the RBA with APRA did trigger this one through tighter macro-prudential rules). While the RBA acknowledges employment growth has been strong and the participation rate is at a record level, there is still spare capacity with unemployment at 5.2%. Historically full employment has been seen with 5% unemployment, but this metric appears to have now been contracted…is 4% unemployed now deemed the sweet spot?
Underlying Inflation is also deemed below ideal at 1.4% March 2019 (RBA is targeting between 2-3%), with the target to be circa 2% by 2020 and “a little higher after that”.
This is positive for Australian Property overall, but in particular for Office where, with the RBA’s backing, business is encouraged to invest into its future, resulting in stronger employment growth and as such stronger Office space demand across all sub-sector types.
Savills believes Office supply is becoming tight in the major cities and in particular Sydney and Melbourne. Rental growth, tightening vacancy rates and reducing incentives are beginning to bite into spare capacity in the CBD’s and having a flow-on effect into the major suburban CBD’s of North Sydney, Parramatta, St Kilda and some more decentralised locations. Our latest 2Q analysis highlights CBD net face rents are now at post GFC highs across all grades, while yields are at all-time lows.
Brisbane and Perth are also seeing demand driven tightness emerging, with asset price stabilisation and appreciation, helped by vacancy rates falling.
We expect national Office to continue its capital valuation uplift, supported by rent growth and falling vacancies and incentives, which in time will result in further yield compression as investors rebase their investment returns requirements to an Australian environment of low for longer interest rates. Of course Global money has had this funding advantage for some time, which will add to the competition for assets and the further decentralisation of capital to select suburban CBD’s – North Sydney is an example of uplift by proximity.
Industrial Property will also continue to see capital value growth as the second derivative to lower interest rates boosting economic activity and a more confident consumer. Logistics will be the primary beneficiary here, supported by supply constraints around population densities especially relevant to Sydney and Melbourne markets.
From a Retail perspective, the RBA and the Government is wanting to encourage the consumer to spend. The Federal Governments Tax Cut Policy passed yesterday in the lower house and is now to be presented to the Senate will, if passed, give further impetus to the consumer to spend. In the last 5-7 years, the consumer has changed its spending patterns influenced by online e-tailing; low income growth; employment frequency (casual versus full-time) and what we deem the “Canberra Effect” – Governmental policy indecision and political disruption of the last 10 years and its psychological impact on the electorate. We see the RBA move coupled with Tax Cuts as a positive pivotal moment for retailers and Retail asset values going forward.
But it’s worth noting that RBA Governor Lowe stated that “Given the circumstances, the board is prepared to adjust interest rates again if needed to get us closer to full employment and achieve the inflation target”. 
So the RBA would further adjust rates if required! 
The RBA is clearly pursuing a path to pump prime the economy to boost confidence, employment and spending. It is targeting all time low rates to partner with the Federal Governments Tax Cuts Policy, passed yesterday in the lower house and now in the Senates’ hands, to give the electorate circa $158bil back into their hip pocket over the next 5 years. If passed in the Senate, those earning up to $90,000 would get an extra $1,000 back in tax within weeks, that could be spent at your local Mall or on a domestic holiday (The Aussie dollar may constrain the overseas holiday).
In Summary, the RBA’s easing to record lows and if the Senate passes the proposed Tax Cuts Policy with little amendment, Retail could see a much need boost into Christmas which in turn will boost landlord rental streams and stabilise asset values. Industrial, particularly logistics, will also benefit as retail recovers. 
However, Office Property will be the near term winners, as business investment prompts employment growth and the demand for Office space tightens an already limited supply base. Rental growth will continue and further cap rate compression will eventuate, as investment returns requirements allow for further asset purchases.
Phil Montgomerie is the head of research at Savills.
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RBA rate cut to record lows is good for property: Savills

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GUEST OBSERVATION
There’s a very good chance that later today the Reserve Bank will cut its cash rate to 1%. Some predict more cuts by the end of the year, <a href="https://theconversation.com/buckle-up-2019-20-survey-finds-the-economy-weak-and-heading-down-and-thats-ahead-of-surprises-119455" target="_blank">perhaps to 0.5%</a>.
It’s understandable. Economic growth is <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2019-06-05/australian-economy-slows-to-levels-last-seen-in-gfc/11180688" target="_blank">under-performing</a>; prices and wages are <a href="https://theconversation.com/our-economic-model-looks-broken-but-trying-to-fix-it-could-be-a-disaster-118397" target="_blank">scarcely growing</a>; and for three quarters now the economy has been in what might be called a <a href="https://www.smh.com.au/business/the-economy/australia-falls-into-per-capita-recession-as-growth-tumbles-20190306-p5122r" target="_blank">per-capita recession</a> (the economy is not growing as fast as the population).
In the central banker cookbook there’s a note in red next to this description. It reads: “cut interest rates.”
But the Reserve Bank’s cash rate is already close to zero, at 1.25%. What if the needed cut is 2 or 3 percentage points?
Lowe knows his cookbook
Reserve Bank governor Philip Lowe hopes that cutting the rate will help in two ways.
First, it will ease the mortgage burden on households, freeing up money for spending and making it easier for them to borrow. This may help sustaining house prices and reigniting the construction boom.
Second, by cutting the rate offered on Australian bonds and deposits, cutting the rate will devalue the Australian dollar, making Australian exports more attractive overseas.
The problem with the first channel is that more borrowing builds up debt. But Australian households are already among the <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2018-10-30/australia-most-country-to-risks-of-rising-household-debt/10445814" target="_blank">most indebted in the world</a>, with private debt worth twice what the whole economy can produce in an entire year, so more debt may leave Australians even more exposed if things turn down and they lose their job. The Irish economy <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2018-10-08/how-much-is-australia-in-2018-like-ireland-in-2007/10343364" target="_blank">collapsed</a> when that happened during the global financial crisis.
The problem with the second channel is that it makes it harder to import. Bear with me.
Which Australia?
When I arrived in this sunny country in 2011, my colleagues and friends were always talking of the transition out of the mining and construction economy.
In few words, the story goes like this: the Australian economy boomed when East Asia started demanding our iron and coal. When that slowed down, the economy stayed afloat, because mining workers transferred to the cities to build new residential neighbourhoods for the growing population. By the time that ends we will have built a strong service economy–strong enough to take the place of construction.
But this transition hasn’t really happened, perhaps in part because of low interest rates.
Unlike mining, services need to import most of their inputs and compete on a global market for workers. A weaker dollar increases their costs.
And unlike construction, they are not particularly capital intensive. So low interest rates don’t much help them.
All isn’t lost
The services industries that are our future would be better off if it the Reserve Bank didn’t need to try so hard – there is a lot the government can do.
The services sector needs investments in the sort of infrastructure that would make our global cities attractive to live in.
It also needs reforms to make our services more competitive at home, perhaps by disturbing the distribution duopoly or by <a href="https://theconversation.com/how-changing-our-bank-account-numbering-system-will-be-a-win-for-customers-40236" target="_blank">making the big four banks compete harder for customers</a>. As well, the government has a role in absorbing (directly and indirectly) some of the workforce that inevitably will lose out when the mining and construction sectors contract.
At best, the Reserve Bank is buying time for the government. Alone it probably can’t avoid a recession forever.
<a href="https://theconversation.com/profiles/gabriele-gratton-457958" target="_blank">Gabriele Gratton</a>, Associate Professor of Economics and Scientia Fellow, <a href="http://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a>
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/rate-cuts-might-hurt-as-well-as-help-what-if-this-man-didnt-need-to-do-as-much-119378" target="_blank">original article</a>.
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