Experts fear the Reserve Bank of Australia (RBA) will need to take action in the wake of the COVID-19 (coronavirus), according to Finder.
In this month’s Finder RBA Cash Rate Survey™, 39 experts and economists weighed in on future cash rate moves and the state of the Australian economy.
Graham Cooke, insights manager at Finder, said 20 of those surveyed specifically called out the threat the virus poses.
“House prices are still rising in an almost unsubstantiated way, the effect of the smouldering bushfires is still to be felt, and inflation is still sluggish – but it’s the coronavirus above all that is concerning economists right now.
“Specifically, whether the affected countries can keep a lid on the spread of the virus. With COVID-19 now spreading through Europe and the Middle East, that looks unlikely.”
The major fears of the panel centred around education, tourism and property. This follows last week’s news that the Aussie dollar had dipped to 65 US cents, a low-water mark last seen in March 2009.
Most are now saying a budget surplus looks unlikely including REA Group Senior Economist Nerida Conisbee.
“If Chinese economic growth plummets for more than one quarter, this will hit the Australian economy.
“Already our tourism and education sectors are being hit due to their reliance on Chinese consumers. We don’t have much room for movement with interest rates and if things start to get bad, we likely only have one or two cuts left.
“It is likely that May’s Federal budget will be far more interesting than last year and the Government may need to give up their surplus.”
Shane Oliver of AMP Capital, said that March quarter growth is already likely to have been depressed by the COVID-19 outbreak via the hit to tourism from China in particular.
“If [COVID-19 is] not contained by the end of March, the impact will likely broaden significantly to education and hard commodities and could drive a second negative quarter of growth in Australia,” Oliver said.
Since the outbreak started to affect Australian markets on Feb 21st, the ASX200 has fallen 10%.
Cooke said COVID-19 fears, along with the uncertainty of the impact of the bushfires, has driven overall economic confidence down amongst the panel to an all-time low of 8% across the five metrics tracked. This is down from a high of 31% in April of 2019.
Nearly all experts (90%, 35/39) in Finder’s RBA Cash Rate Survey expect an RBA rate cut to happen in 2020, while just 15% (6/39) are predicting a cut tomorrow.
Cooke said he was surprised to see even 15% of our experts predict a cut this month.
“With the resurgence of the housing market still happening, coronavirus hitting markets hard and general economic figures remaining stagnant, the general consensus is that it’s too turbulent a time to make the call for a rate easing.
“However, all experts, bar four, are predicting that a cut is on the horizon,” Cooke said.
Seven respondents (18%) expect a 0.25% cash rate by the end of the year, and 28 (72%) expect 0.50%.”
April and May are the most likely months for a cut, cited by ten (26%) and nine (23%) experts respectively.
Shane Oliver is one of those predicting a cut within the next two months.
“The next move is likely to be a cut in either March or April.
“I don’t have a strong view which one it is and it’s not a big deal which one it is either.
“The coronavirus outbreak coming on the back of the bushfires is likely to see the economy go backwards this quarter which in turn is likely to push unemployment up further after the rise to 5.3% seen in January.
“Growth should rebound in the March quarter but given the uncertainty around Covid-19 and its impact globally there is much uncertainty around that and given we are so far from full employment and the inflation target the RBA is likely to take cut the cash rate again in the months ahead.”
