Housing downturn will force RBA to cut rates

We think that 2019 will be the year in which previous excesses in Australia’s housing market will catch up with the economy. We believe that the deepening housing downturn will become a far bigger drag on Australia’s GDP growth than most anticipate. Rather than hiking interest rates as most anticipate, we think the Reserve Bank of Australia will have to respond by cutting interest rates later this year. That means that the Australian dollar should weaken further instead of strengthening as many expect. Meanwhile, we remain more pessimistic about the outlook for New Zealand’s economy than most other analysts and think the Reserve Bank of New Zealand will wait much longer before hiking interest rates than the consensus.