Published : 23 December 2015
Australia's leading financial forecasters say the Reserve Bank of Australia will leave interest rates on hold in 2016.
Speaking at their Annual General Meeting in Sydney, the Australian Business Economists executive also said house prices would hold up in 2016, although growth would be at a slower rate.
The Australian Business Economists executive comprises representatives from Westpac, Deutsche Bank, JP Morgan, Citigroup and the National Australia and ANZ banks.
For those buying or selling property or business in 2016, the executive's conclusions were fairly positive and optimistic.
Dwelling investment supported
The experts expect Australian economic growth to lift in 2016, driven by strength in net exports and solid growth in household consumption. Dwelling investment will also add to growth.
From an estimated growth rate of 2.3% in 2015, the median forecast is for GDP growth of 2.7% in 2016, strengthening further in 2017 to 3.0%.
Low interest rates and strong population growth have supported dwelling investment. Dwelling investment is forecast to grow by 2.2% in 2016, before shrinking by 1.4% in 2017. This follows estimated growth in dwelling investment of 9.7% in 2015. The pipeline of dwelling investment remains strong, suggesting residential construction is likely to remain at an elevated level.
The Committee expects employment growth to remain moderately firm. Following employment growth of 0.7% in 2014 and expected growth of 1.7% in 2015, the median forecast of the Committee is for 1.7% growth in 2016 and an expansion of 1.8% in 2017.
Cash rate on hold
The Committee expects the RBA to leave the cash rate on hold at 2.00% for all of 2016. However, the range of forecasts for the cash rate at the end of 2016 ranges between 1.50% and 2.25%, indicating that the Committee is divided on whether the next move is up or down. The Committee expects that the cash rate will not be raised until 2017.
Most Committee members did not expect much impact on the Australian economy from the recent tightening of domestic bank lending conditions. Where members did, the impact on the housing market was only expected to be marginal.
The majority of Committee members did not think that recent out-of-cycle mortgage rate hikes affected the RBA outlook. Indeed, most Committee members were of the view the RBA was comfortable with tighter lending conditions within the housing market. However, a few members of the Committee did expect there was an increased chance that the RBA will lower the cash rate.
Most Committee members do not expect national house prices to fall in 2016. Members expect the pace of growth in house prices to slow from the current rate, however. Committee members are forecasting stable to modest growth next year for housing prices. Members indicated that while national demand/supply dynamics are now less favourable, there remains decent fundamental support. Some members indicated they expected stronger housing price growth in Sydney and Melbourne compared to other capital cities.