Four rate cuts tipped as Albanese government faces weak productivity growth

The Australian economy has slowed but a chief economist has predicted when there will be four rate cuts as the Albanese government faces weak productivity growth.

Four more rate cuts – including one as soon as July – are the “only silver lining” for Australian households amid falling living standards as the nation slides back into a per capita recession.

The economy grew by just 0.2 per cent in the first three months of this year, with the worse-than-expected GDP figures dragged down by natural disasters, low consumer spending and business investment.

It means accounting for population, Australia has fallen into a per person recession for the ninth quarter of the last 11.

AMP chief economist Shane Oliver said low growth significantly increased the chance of a 25 basis point interest rate cut in July, with three more likely to follow in August, November and then February next year.

Economist Shane Oliver said low growth significantly increased the chance of a 25 basis point interest rate cut in July. Picture: NewsWire/John Appleyard

“That will take the cash rate down to 2.85 per cent, which is still well above the 0.1 per cent of 2021 – the Reserve Bank doesn’t want to go back to that – but there is more urgency to get rates down,” he said.

“That’s the only silver lining I can see from these national accounts.”

Mr Oliver said while weather events like flooding in northern NSW and ex-Tropical Cyclone Alfred earlier this year had delayed exports and reduced household demand, it was clear the real impact on people’s spending was that “interest rates are still too high”.

The cash rate is currently 3.85 per cent after two 25 basis point cuts so far this year in February and May.

For the average Australian mortgage of $660,000 a cut in July would reduce repayments by $100 a month, assuming a 25-year loan with a current standard variable interest rate of 5.86 per cent.

Mr Oliver said weak productivity growth was a major issue for the Albanese Government, which must turn its attention to simplifying Australia’s regulation and taxation system.

The GDP figures released by the Australian Bureau of Statistics on Wednesday do not capture the full impact of Donald Trump’s tariffs announced in April.

Federal Treasurer Jim Chalmers urged people not to “over-interpret” the flat GDP data. Picture: NewsWire/Martin Ollman

With the US President last week doubling the import tax on steel and aluminium, Treasurer Jim Chalmers said the “world is a dangerous place” due to both security and economic uncertainty.

But Mr Chalmers said he was “quite optimistic” about Australia’s future and urged people not to “over-interpret” the flat GDP data.

“There are some temporary factors,” he said, referring to natural disasters.

“But growth is softer than we would like it to be, and I’m confident that growth will accelerate in our economy.”

Mr Chalmers did concede Australia’s economy was “not productive enough”.

Coalition treasury spokesman Ted O’Brien criticised Mr Chalmers’ for implying any growth at all was a positive, saying this was “hardly inspiring to international capital markets, let alone Australian industry”.

He also pointed out the 0.4 per cent increase in household spending last quarter was largely due to higher energy bills.

“Very clearly, the economy is hardly growing, businesses are barely investing, and households are feeling anxious,” Mr O’Brien said.

Originally published as Four rate cuts tipped as Albanese government faces weak productivity growth