These indicators could determine whether the Australian economy is starting to turn around

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  • Australia’s economy slowed sharply in the second half of last year.
  • Over the past couple of weeks, political uncertainty has reduced, lower interest rates appear likely, the amount home buyers can borrow looks set to increase while household incomes should get a boost from tax cuts.
  • UBS says these factors should help to support sentiment and “materially reduces downside risks” for the housing market and the broader economy.
  • The bank has produced a nifty table outlining which indicators you should be watching to determine whether a rebound in the economy is occurring.

Australia’s election has now been won and run, delivering a surprise return for the ruling Liberal-National Party Coalition.

The Reserve Bank of Australia (RBA) is also likely to cut official interest rates in the months ahead, potentially as soon as March.

APRA, Australia’s banking regulator, has also flagged a likely easing in mortgage lending standards, acknowledging that it’s considering scrapping the minimum 7% serviceability rate that all new loan applicants are assessed on.

Income tax cuts are also on the way, when they eventually become legislated when Australia’s parliament returns.

After a steep slowdown in the Australian economy in the second half of last year, something that looks set to continue if recent economic data is any guide, those four factors combined offer grounds to suggest economic activity may start to improve in the months ahead.

Political uncertainty has been reduced, lower interest rates appear likely, the amount home buyers can borrow looks set to increase while household incomes should get a boost.

According to UBS, these factors should help to support sentiment and “materially reduces downside risks” for the housing market and the broader economy.

But will they actually help to support economic activity in the second half of the year and in to 2020?

While that remains an open question at this point, UBS has produced a nifty table evaluating the indicators it believes should be watched closely to determine whether a rebound in the economy is occurring.

It comes from a research report the bank released last Friday, and includes a synopsis as to why it deems each indicator to be noteworthy.

The first section focuses on the leading indicators that generally signal what’s likely to happen in the economy in the period ahead.

UBS

The second section is for timely official economic data indicators.

UBS

While it’s yet to be seen whether the economy will start to turn around, nearer-term, UBS economist George Tharenou isn’t expecting that Australia’s March quarter GDP report — released next Wednesday — will have much for the optimists to crow about.

“Economic data keeps getting worse,” Tharenou wrote.

“GDP is likely to post a third consecutive quarter of per-capita recession at just 0.4% … with downside risks.

“Unemployment is now trending up, as we long expected, following its normal lag to weaker growth.

“There is now also the global risk of [the U.S.-China] trade war escalating.”

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