Economic update September 2019

3 min read

Global oil prices surged mid-September after an attack on Saudi Arabian oil facilities that accounted for around 5% of global supplies.

The US-China trade tensions look to be the primary reason for the Federal Reserve’s ‘hawkish’ rate cut of 25 basis points, whilst a rise in Australia's unemployment rate lifted projections of an RBA rate cut in October.


Australia’s unemployment rate rose mid-September to a 12 month high of 5.3%, despite sturdy jobs growth. The figures were a substantial setback as the Reserve Bank Governor stated that the bank are aiming for a figure of 4.5%. Subsequently, in late September Interest rate futures were pricing in a near 80% probability of a rate cut to 0.75% at the RBA’s October meeting, up from just a 24% chance priced in the week prior.

Australia’s Current Account, published in early September, posted its first surplus in 44 years in the June quarter, primarily driven by surging commodity prices.  The trade surplus reduced from a record June number of $8Bn to $7.3Bn in July. The decrease was attributable to an increase of Imports of 2.9%, after a decline of 3.5% in the previous month. Exports also expanded by 0.6%.

Consumer inflation expectations fell from 3.5% in August to 3.1% in September, the lowest level seen since 2015, fuelling projections that low inflation may be here to stay. Consumer confidence also slipped in September, according to the Westpac-MI Consumer Confidence Survey. The Westpac-MI Index of Consumer Sentiment fell by 1.7% to 98.2, below 100 and into contractionary territory.  

The August NAB Business survey recorded that both business confidence and conditions declined to +1 index point, well below long-run averages. Business conditions fell 2 pts, while Business confidence fell 3pts. Confidence was weaker across most industries, however increased in the manufacturing and mining sectors over the month.

United States

The US Federal Reserve delivered a ‘hawkish’ cut of 25 basis points to 1.75%-2.00% mid-September, also cutting interest on excess reserves by 30 basis points, predominantly driven by trade tensions and slowing global growth. The Fed stated that it would “act as appropriate to sustain the expansion,” thereby offering no indication of expected future rate cuts. Data out of the US late September however showed signs of resilience, as the IHS Markit manufacturing index edged up to 51 during the month, passing monthly expectations and August figures.  

Headline news in the US late September surrounded President Trump’s impeachment proceedings, however the news had only a mild impact on financial markets, with the S&P500 falling 1% over the 5 days succeeding the announcement. The enhanced prospect for a temporary US China trade deal seemed to have preoccupied markets, as high level talks are expected to resume on October 10.

US economic data released in September was generally positive. Previously owned home sales rose 1.3% over August, the fastest increase seen since early 2018. Labour market data showed strength with a reduction in the amount of people signing up to unemployment benefits, according to the initial jobless claims survey. The University of Michigan consumer sentiment index rose from 89.8 in August to 92.0 in September, steadily increasing from a near three-year low. US CPI fell from 1.8% in August to 1.7% in September. Core inflation for personal consumption expenditures however edged up from 2.2% to 2.4% over the same period. Overall, PCE inflation was 1.4% higher than a year ago.


Economic data out of China showed signs of deceleration across industrial production, retail, and investment. The trade war with the US is impacting production activity in China in particular, with consumer spending and investment spending not compensating enough to offset the decline. Industrial production fell during the period from an annualised rate of 4.8% in July to 4.4% in August. Retail spending also fell during the period from 7.6% to 7.5%. Fixed asset investment slowed from 5.7% to 5.5%.

August Economic data showed that inflation in Japan rose 0.3% over the year. The result was in line with market expectations, with energy costs being a major detractor. The Bank of Japan (BOP) ordered a review to see whether global volatility would delay the momentum of CPI reaching its 2% target. Bank of Japan board member, Takako Masai, said that the central bank would ease policy further, if such momentum was lost.


Lawmakers in the UK took the first step toward blocking a no-deal Brexit, voting 328-301 to take control of the parliamentary agenda. The law that was passed requires the Prime Minister to request a three month delay if he hasn’t achieved a Brexit deal by 19th October. Prime Minister Johnson may try to call for a snap election again, however he needs ⅔ of votes from MPs, which may be unsurmountable being he fell far short of the required vote’s mid-September.

As expected, the ECB announced policy rate cuts in September and a restart of QE, with European and US equities rising in response. The ECB lowered its key deposit rate to -0.5% from -0.4%, and also committed to buying 20 billion euros worth of bonds per month indefinitely starting November. Eurozone headline inflation sat at 1% in August, unchanged from the July figure and in line with market expectations. It remained the lowest inflation rate since November 2016. The Eurozone seasonally-adjusted unemployment rate was recorded as 7.4% in August, down from 7.5% in the month prior and the lowest rate seen since May 2008, boosting the service sector outlook for the region.

Concerns continue over poor European economic growth, according to the latest sentiment data. The European Commission’s economic confidence indicator fell to the lowest point in almost 5 years from 103.1 in August to 101.7 in September. Eurozone PMIs beat consensus forecasts in August, yet the manufacturing sector remains in contraction. Germany’s PMI edged up to 51.4 over August from 50.9 in the previous month, beating the consensus forecast of weakening to 50.5. The increase in PMI may not be strong enough to dissipate another contraction in GDP, following a 0.1% contraction in the June Quarter. 

A more detailed summary can be found here.

Next: Geopolitical risks


Economy 11 Sep 2019
During August ongoing trade tensions again unnerved investors, with tariffs imposed on Chinese goods by the US triggering a spike in volatility across global markets.
Perspectives 19 Sep 2019
The world has always been challenged by geopolitics. Current risks include US-China relations, China and Hong Kong, and Brexit.

Information current as at 30 September 2019.

This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it. This article may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.