SYDNEY: Australia's economy likely grew at the slowest pace in over a year last quarter as business spending hit a pothole, while striking weakness in wages means inflation should be no bar to further policy stimulus if needed.
The Reserve Bank of Australia (RBA) holds a policy meeting on June 2 and is almost certain to hold steady having cut rates to an all-time low of 2.0 percent just a month ago. A Reuters poll of 24 analysts found all expected a steady outcome this month,
though eight still looked for another easing by year end. Investors are also leaning toward a cut as interbank futures imply an 80 percent probability of a move by Christmas.
The need for stimulus should be all too evident when the Australian Bureau of Statistics releases its report on gross domestic product (GDP) on Wednesday.
Australia's A$1.6 trillion of GDP is expected to rise a modest 0.5 percent in the first quarter while annual growth likely slowed to 2 percent.
Weighing most is weakness in business investment. Mining is in full retreat after a decade of madcap expansion, while other firms seem to be waiting for a clear pick-up in consumer demand before committing new money.
One sector that is doing its part is housing with home construction looking set to beat all records this year.
Figures on Monday showed a 4.4 percent pullback in approvals to build new homes in April but all that came in the volatile multi-unit sector and approvals for detached house jumped 4.7 percent in the strongest result for 15 months.
Overall, approvals are up over 16 percent on a year ago while apartment growth is running above 27 percent.
The increase in supply might be helping cool the property market just a little with prices across Australia's capital cities falling in May for the first time in six months although annual home values still picked up, according to property consultant CoreLogic RP Data.
The scale of speculative demand for housing has unsettled the RBA which fears it could ultimately push prices to peaks that threaten a sharp pullback.
Treasury secretary John Fraser told a Senate committee on Monday that Sydney was "unequivocally" in a house price bubble.
Regulators have tightened their coverage of lending standards for property investment and there are signs banks are slowing growth in their mortgage books.
More broadly, inflation is well in check with wages growing only sluggishly as unemployment stays stuck near a decade-high around 6.2 percent.
A government measure of wages and salaries on Monday showed a very rare dip in the first quarter and annual growth of a scrooge-like 1.4 percent.
That was echoed by the TD Securities-Melbourne Institute's monthly measure of consumer prices which rose at an annual pace of 1.4 percent in April, well below the RBA's target band of 2 to 3 percent.
"The persistent weakness in services investment plans cannot be dismissed, and low inflation is no impediment to further easing should that be required," said Annette Beacher, chief Asia-Pac macro strategist at TD Securities.
"We expect this tone and explicit easing bias to be voiced at tomorrow's RBA Board meeting."
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