The Australian economy expanded by 2.5% over the past year, according to the latest ABS data. The rise, while at the lower end of the target, demonstrates the resilience of the economy despite declining commodity prices. The latest building activity data provided some positives, with the value of work completed rising by 4.1%. The data points to residential building as the main driver of growth, with record low interest rates encouraging demand. Monetary policy is continuing to encourage lending and investment, and has contributed towards growth to date.
The Reserve Bank of Australia (RBA) lowered the official cash rate by a further 0.25% in May, to a record low of 2.00%. The RBA suggested that declining commodity prices and sedate business capital expenditure are the major reasons behind the cut. While the move aims to promote growth, the announcement by the RBA Governor, Glenn Stevens, suggests that the economy may be performing slightly better than expected. The RBA has noted improving trends in household demand and stronger employment growth over the past six months. Additionally, the RBA has suggested that lower interest rates are starting to have an effect, with lending to businesses improving more recently.
The unemployment rate rose slightly in April, as it continues to fluctuate around 6.2%. However, the trend rate declined slightly, suggesting that the level of unemployment may be steadying. Low interest rates have gone some way to easing the stress on businesses, allowing them to put on staff and limit cuts. However, there is still significant room for improvement, with the unemployment rate still 0.3% higher than this time last year.
The Westpac-Melbourne Institute Index of Consumer Sentiment pointed to rise in sentiment in May, from 96.2 to a positive 102.4. The rise into positive territory signifies that more consumers feel positively about their future economic prospects. The significantly improved sentiment figures suggest that the looming Federal Budget was likely affecting responses in the previous month. The voter-friendly budget, released earlier in May, has had a positive effect on sentiment, which is an encouraging sign for the economy. While consumer sentiment rose, the latest NAB Monthly Business Survey pointed to steady business confidence during April, remaining at positive 3. However, the release of the Federal budget, with a $5.5 billion package for small businesses, is likely to boost confidence when new figures are released next month.