Australia: Economy normalising - AmpGFX

According to Greg Gibbs, Analyst at Amplifying Global FX Capital, the Australian economy is on the road to normalization as GDP has been growing above trend and may continue to do so. 

Key Quotes

“There is slack in the labour market, and wages growth is below that needed to return inflation sustainably to target, but unemployment is falling.”

“At 5.3% in July, it is the lowest since 2012 and getting close to historical perceptions of full-employment (NAIRU) around 5%.  However, broader measures of under-employment suggest that there is still considerable slack in the labour market.”

“International experience suggests that the labour market may have to tighten much more and sustainably to generate more significant wage growth, but the RBA appears quietly hopeful that Australia will be different.”

“RBA Governor Lowe said on Wednesday that, “Firms are currently reporting a record number of job vacancies and increasingly telling us that it is hard to find workers with the right skills. One way of dealing with this increasing tightness in the labour market is, of course, to lift wages.”

“Australia may even be placed to benefit from a US-China trade war, turning China more towards Australia for LNG.”

“As such, even though risks to global growth and China’s growth may be dampening the AUD, its commodity prices have held up, helping to generate stronger income and underpin economic growth in Australia.”