Morning Report Thursday 4 December 2014
Australia’s GDP yesterday illustrates why local interest rates will fall in 2015
Please excuse the boring economics today, BUT it affects us all.
Interest rates plunged in Australia yesterday, after our GDP (measure of economic strength) grew at only 0.3% from September, compared to the expected 0.7% - economists missed that one by over 50%. Australian 10-year bonds are now down at almost 3%, in simple terms, as our economy slips close to a recession, we still have interest rates substantially higher than some other major players e.g. Germany at 0.45% and Japan at 0.77%. I’m afraid the RBA are yet again significantly behind the curve, based on the history of real GDP, there is a 25% chance of a recession in Australia. However, the good news is there is now an 80% chance they cut rates i.e. almost a certainty, hopefully leading to a positive outcome for equities and eventual growth stimulation and further increases in asset prices.
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