Australia Placed Well for Recovery says Goldman Sachs

Andrew Boak Goldman Sachs’ Chief Economist for Australia & New Zealand is out with a note positive on Australia’s economic recovery. He said he believed Australia in a good position for recovery extending into the end of this year and next. With the RBA focusing on wages he said he saw slow grinds expected for wage growth and inflation.

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Goldman noted that to see wage increases, full employment is a critical issue. The wages analysis is in line with Governor Lowe of the Reserve Bank of Australia comments after the all-important September quarter wages data vindicated his relentless dovishness on both wages and monetary policy.

“If you think wages are going to go from 2 per cent to 3.5 or something in six months, well, maybe the market’s right, and we’re wrong,” he told a gathering of Australian business economists.

Governor Lowe of the Reserve Bank of Australia

The wage price index expanded only 0.6 per cent in the September quarter, and by just 2.2 per cent over the prior 12 months. Australian wage costs are running at half the rate evidenced in the US and UK, which is one reason why the core inflation rate is way below their equivalents.

RBA Lowe
RBA Lowe

Governor Lowe repeatedly said he was not expecting a wage breakout similar to what has been observed in countries like the US and UK, where wage costs have been climbing at more than a 4 per cent annualized pace.

“So the probability of unwinding a decade-long decline in wages growth in just six months seems very low to me. It’s probably not zero but it’s close to zero.”

Governor Lowe of the Reserve Bank of Australia

Lowe further explained that for consumer price inflation in Australia to be rising sustainably within the RBA’s target 2 per cent – 3 per cent band, “wages will need to be growing at 3 point something per cent”.

Source: Goldman Sachs

From a Sunburnt Country…

From The TradersCommunity Australian News Desk