No rate cut expected till May budget

The Rudd Governments' handout seems to have petered out, and the predictions for world growth are terrifying.

Economists are predicting further rate cuts and increased Government spending may be required in the coming months to protect jobs, with the May budget expected to contain more fiscal stimulus.

The Herald Sun has reported that Acting Prime Minister Julia Gillard has warned that the unemployment rate was likely to be higher than the 7 per cent originally forecasted by the middle of next year. Government figures released recently have revealed that skilled vacancies fell almost 11 per cent in March. Ms. Gillard told a conference in Adelaide that since the latest forecast was published, the global recession has worsened and there have been dramatic downgrades in global growth.

The Government's updated economics forecasts will be provided in the May Budget. Some economists have predicted that the budget will include more short-term fiscal stimulus on top of $8.7 billion worth of cash payments from the Governments' latest $42 billion plan. Retail sales figures for February, which were released earlier this week, have shown a 2 per cent slump, as the effect of the cash handouts have come to an end.

ANZ economist Alex Joiner said that the February retail sales figures have shown that the fiscal stimulus was critical to supporting spending in the economy late last year. These numbers seem to pave the way for another announcement of short-term fiscal stimulus in next months Budget.

The High Court will hand down its decision shortly on whether taxpayers can lawfully receive the $900 cash, payments as part of the Government's latest $42 billion stimulus plan.

The chief executive of the Australian National Retailers Association Margy Osmond has urged the Reserve Bank of Australia to consider another 50 basis point cut to interest rates next week. Economists however, believe and the market indicates that the central bank, which did not cut rates last month, will not do so again next week.

The first home owners grant and the RBA's interest rate cuts may have helped the construction cycle bottom with February building approvals surging 7.8 per cent in the biggest monthly rise since May 2005. Economists have warned that the jump was driven entirely by a 34 per cent upswing in the volatile apartments sector, but many seem to think the cycle may be bottoming.

Published on April 4-rd, 2009 in Financial Planning
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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