The Reserve Bank is expected to cut rates in July following weak GDP figures

Homeowners will be quietly celebrating Wednesday’s sluggish GDP figures, with a rate cut in July all but locked in. But how far will the RBA go?

Homeowners will be quietly celebrating Wednesday’s sluggish growth figures, with Australia’s slip back into a per capital recession all but locking in an interest rate cut when the Reserve Bank meets in July.

More than four in five economists are now predicting a rate cut of 25 basis points at the meeting on July 8, with more cuts expected over the course of the second half of the year amid a slowing economy.

ABS figures released on Wednesday showed that gross domestic product rose by just 0.2 per cent in the March quarter and 1.3 per cent year-on-year, on the back of weak consumer spending, the effects of Cyclone Alfred on economic activity in Queensland and NSW and falling commodity prices.

When population growth is stripped out of the GDP figures, it reveals Australia’s economy went backwards, shrinking by 0.2 per cent on a per capita basis.

AMP chief economist Shane Oliver said the poor growth figures followed a series of weak economic data that pointed to the need for interest rate cuts to be fast-tracked.

AMP chief economist Dr Shane Oliver. Picture: NewsWire / John Appleyard

“In the context of where we were three months ago, it’s pretty depressing,” he said.

“I think it’s really just a sign that the economy’s still struggling. We’ve now had per capita GDP go backwards in something like nine of the last 11 quarters.

“For the RBA, I think it increases the pressure for more rate cuts. It’s telling us that interest rates are too high, even before allowing for the trade war threat.

“It’s looking increasingly likely we will get a July cut. Our base case had been August, November and then February for cuts. But what these numbers are telling us is that it could come earlier and rates could go lower, i.e. we get a cut in July potentially, again in August and then November, and then maybe one more in February next year, which would take the cash rate to 2.85 per cent.”

More than four in five economists are now predicting at least three interest rate cuts before the end of the year.

Wednesday’s GDP figures came in below market forecasts of 0.4 per cent growth for the quarter.

The Australian economy’s fall back into a per capita recession comes after a 0.1 per cent rise in December, which followed seven consecutive quarters where the economy went backwards on a per capita basis.

Dr Oliver said inflation figures due out later this month would be a key factor for the RBA when deciding how quickly and how deep to cut.

Australia’s population growth is keeping the economy ticking. Picture: NewsWire / Max Mason-Hubers

It meets on July 8, a day before US President Donald Trump’s temporary tariff pause is lifted, and Dr Oliver said uncertainty over global trade tensions could drag the Australian economy into an even deeper hole.

“It’s unclear as to where the tariff thing will go, but as the RBA points out ... a lot of the impact comes through in terms of uncertainty,” he said.

“So businesses, when they’re uncertain about things, they stop decisions to invest, and so it could act as a bit of a drag on investment, even though there’s no new really bad news on the tariffs.”

Oliver Hume chief economist Matt Bell said the chances of a quicker and longer period of rate cuts were now “materially higher” than they were before the GDP release.

“Prior to today’s release, financial markets had priced in nearly a 75 per cent chance of a rate cut at the July meeting, and a further two cuts by the end of March next year. Today’s weak result will see a July cut move closer to being a sure bet.”

Originally published as The Reserve Bank is expected to cut rates in July following weak GDP figures