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Rate pressure eases as GDP slows

By webmaster
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Surprisingly weak economic growth in the September quarter may keep property buyers safe from further interest rate rises for just a little longer.


The national economy grew just 0.2 per cent in the three months to September 2010, data from the Australian Bureau of Statistics showed yesterday, as higher interest rates took their toll on spending and the high Australian dollar curbed exports.

The figure brings the annual rate of economic growth to 2.7 per cent and compares to a much stronger 1.1 per cent recorded in the June quarter this year.

While there was already little expectation of another rate rise before Christmas, the revelation of a stalling economy has wiped any chance clearly off the table – financial markets have now ruled out any change of the Reserve Bank increasing the official cash rate when it meets again next Tuesday.

But while the economy appears to have slumped somewhat in the September quarter consensus remains that September’s result was a mild adjustment and Australia’s economy is still strong.

“Statistically it was almost inevitable that GDP growth was going to weaken in the quarter because growth in Q2 was so strong,” commented Paul Bloxham, chief economist at HSBC.

According to Mr Bloxhalm the economy will still require further monetary policy – i.e. rate rises, to restrain growth – in particular the mining boom, but this latest result may delay the next hit.

“The weaker GDP number may… have an effect on the timing of rate rises, making Q1 2011 perhaps less likely than before we saw these numbers.”

“As we dig more deeply through these numbers over coming days we will firm up how confident we are of a Q1 2011 hike (these numbers do reduce our confidence a little). But the outlook certainly remains strong enough that we continue to expect a number of rates rises next year.”

For aspiring property buyers, the conclusion here is that interest rates remain on an upward path, however there may be some reprieve from higher borrowing costs until as late as April next year.

With this in mind it is still worth budgeting higher interest rates in when considering your property price bracket and personal budget in order to ensure a stress-free mortgage.

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