The bad news keeps on coming, with the International Monetary Fund set to cut Australia’s growth forecasts to nearly zero.
But the recent rush of worrying economic data – including news of China’s slowing economy – looks set to give the Reserve Bank board plenty to think about when it next meets on 3 February.
Economists such as JP Morgan’s Stephen Walters is now tipping the RBA will cut the official cash rate by 1% to 3.25%, followed by another 0.5% cut in March, taking the cash rate as low as 2.75%.
“We adhere to our view that RBA officials would rather risk overdoing the policy easing by moving early and aggressively, than leaving it too late,” Walters says.
“The alternative – moving too cautiously – risks the economy dropping into a destructive, deflationary spiral of even more aggressive job cuts and collapsing activity, problems that are infinitely more difficult to deal with.”
The Australian sharemarket has opened lower today after a poor night on Wall Street due to disappointing results from tech companies.
The benchmark S&P/ASX200 index was down 93.6 points or 2.68% to 3393.2 at 12.00 AEDST.
The dollar also lost some ground, remaining at US65 cents.
Once gain, the banks were under pressure. NAB shares have fallen 2.4% to $17.68, with Commonwealth Bank shares also dropping 2.1% to $25.06. BHP Billiton lost 3% to $28.26, with Westpac also losing 2.3% to $15.16.
Overseas, Wall Street has suffered losses after Microsoft announced up to 5000 job cuts and expectations of lower profits over the next six months.
The Dow Jones Industrial Average fell 105.3 points or 1.28% to 8122.8. Oil also rose to $US43 a barrel on hopes a new US stimulus package would boost demand.
US job cuts
Also in the US, the number of workers applying for unemployment benefits surged to 589,000 in the week ending 17 January, from 527,000 in the previous week. Labor Department figures show that the last time applications for benefits were this high was in 1982.
US housing starts also fell 15.5% to a record annual low of 550,000, the biggest drop since January 2007. New building permits also dropped 10.7% to a record low 549,000 units from 615,000 in November, while housing starts dropped 33.3% in 2008 – the largest fall since 1974.
Back home, property group Valad will cut its workforce by 25%, including its heads of corporate and Asia-Pacific affairs. Other company executives say they will take pay cuts in order to reduce cost pressure on the company.
Investment group Babcock & Brown says its new business plan and balance sheet will offer no value for shareholders. Talks with creditors on a debt restructure plan are still taking place, but an announcement may not be released for a fortnight.