Australia: recession-bound

Australia’s economy has weakened significantly as the non-commodity sectors have been unable to fill the void left by the now defunct commodity boom. Certainly, the trend within the economy seems to remain towards weaker growth; the strength in the property market is due to specific factors that perhaps have little importance to the macro economy. It’s expected the RBA will continue easing when the behavior of the currency allows: the RBA will not want to initiate a destabilizing rout in the currency given the USD900 billion of foreign funds currently residing within Australia’s debt and credit markets. Of course, Australia continues to need a weaker currency to unwind a decade of rising costs and Dutch Disease but we suspect the RBA to remain tactical regarding the timing of its rate cuts so the AUD doesn’t collapse and thereby erode the household sector’s real incomes too quickly.