ANZ economists have released their quarterly 'Stateometer' report revealing economic performance was above trend for all states and territories, despite rising inflation and the commencement of the cash rate tightening cycle in the June quarter.
Declaring a soft landing, ANZ economists revealed economic momentum decelerated everywhere except Western Australia and the Northern Territory off the back of high commodity prices and strong merchandise trade.
Further, the consumer component of the Stateometer rose everywhere except the Northern Territory and Tasmania, reflecting resilience in consumption demand despite the slowdown and inflation pressures.
Source: ANZ Stateometer Q2 2022
ANZ Senior Economist Bansi Madhavani said based on the broad deceleration, three trends are clearly visible.
"First, rate hikes are filtering through," Ms Madhavani said.
"The Stateometer shows economies across the nation have begun to feel the pinch of rate hikes at least through housing. A surge in variable mortgage rates is affecting borrowing capacity which in turn is driving a slow down in housing prices despite very low rental vacancy rates.
"Second, inflation and cost of living pressures are biting into household confidence, but spending hasn’t fallen off a cliff yet.
"Third, the RBA is racing to neutral and beyond.
"The RBA’s nominal neutral interest rate assessment is likely in the 2-3% range, but we think it will lift its policy rate above neutral to control for inflation and inflation expectations."
ANZ economists have maintained the views of their previous forecast, expecting the RBA to lift the cash rate to 3.35% by the end of the year.
To get to this figure, the RBA would need to increase the cash rate 150 basis points between September and December.
Signs of spending momentum slowing in August
ANZ-observed spending data released Thursday revealed the daily average spend across the first 21 days of August fell a marginal 0.1% from figures recorded in July.
Dining and takeaway spending fell 2% in August, versus a rise of 2% over the same pre-COVID period in August 2019.
Shopping also fell 3% in August, compared to a 1% fall in the the same period in 2019.
ANZ economists Adelaide Timbrell and Madeline Dunk noted resilient household balance sheets and the strong labour market may dilute the impacts of rate hikes on spending in the near term.
"Consumer spending will slow as rates tighten," the economists said.
"The question is the speed of that slowdown, and how this evolves. Consumer confidence is still very low, though financial conditions confidence is back in positive territory."
The fact discretionary spending is slowing is not surprising. The key is whether it slows faster than we are expecting. At this stage the answer is no. Travel is holding up well, for instance. But we will be keeping a very close eye on how it evolves. https://t.co/bMN274cWGi
— David Plank (@DavidPlank12) August 25, 2022
Image by Guille Pozzi via Unsplash
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