Economic update July 2019

The RBA delivered a further cut to the cash rate, followed by the US Fed Reserve who lowered interest rates for the first time in 11 years. New leaders emerged with former IMF head and French finance minister, Christine Lagarde, chosen as the next president of the ECB, while Boris Johnson took office as the new UK Prime Minister.


The cash rate is at a new record low of 1.0% following a second cut to the cash rate by the RBA. The labour market continues to be the focal point for the Governor in guiding his monetary policy decisions. The unemployment rate was steady at 5.2% in June while the underemployment rate fell 0.4% to 8.2%, but remains broadly in line March levels.

Australian shares lifted on investor optimism over the trim to the cash rate, alongside expectations of further easing in the near term. The ASX 200 Accumulation Index lifted 2.94% in July, hitting record highs during the month to break past the peak last seen in 2007.

The headline CPI rose 0.6% in the June quarter, the strongest lift in 1 ½ years. This brings the annual rate to 1.6% from 1.3% in the March quarter. Underlying inflation also rose 0.4% in the second quarter, holding the annual rate steady at 1.6%. Nonetheless, these readings remain below the RBA’s 2 to 3% target band

The NAB Business Survey revealed an easing in business confidence from 7 in May to 2 in June. Business conditions remain below its long-run average at a reading of 3, but is an improvement from the reading of 1 in the month prior. The Westpac-Melbourne Institute consumer sentiment index lowered again to 96.5 in July from 100.7 in June, but pleasingly, the time-to-buy a dwelling index rose 5.4% in the month and 19.5% in the year.

Dwelling prices continue to show evidence of stabilisation as prices across the eight capital cities edged up 0.1% in July, the best result since August 2011. In particular, Sydney and Melbourne have both posted 0.2% increases.


The Federal Reserve lowered US interest rates, reducing the target range by 25 bps to 2 to 2.25%. Chairman Powell was quick to remind the markets that the move was an insurance against downside risks, as opposed to the start of a long series of rate cuts, dampening hopes for further trimmings. Regardless, the S&P 500 gained 1.44% as did the NASDAQ up 2.15% on a total return basis.

GDP expanded at a 2.1% annualised pace in the second quarter, driven by stronger consumer (+4.3%) and government (+5.0%) spending which offset the declines in business investment, residential investment, net trade and inventories.

Core CPI rose 0.2% in June to bring the annual rate to 2.1% from 2.0% in May. Headline CPI also edged up 0.1%, easing the annual rate to 1.6% in June. The labour market in the US remains firm, with the unemployment rate holding at 3.7% in July.

The ISM index for manufacturing continued to lose momentum, falling to 51.2 in July from 51.7 in June, as did the ISM index which came in at 53.7 from 55.1 in June. However, both measures remains in expansionary territory.


With the outlook for a trade deal between the US and China unchanged, attention was focused around the Hong Kong protests. Despite the Chief Executive of the territory having declared the bill dead, protests continued to disrupt the city’s streets.

Chinese data reflected weaker economic momentum. June quarter GDP was reported to have slowed to an annual rate of 6.2% from 6.4% in the first quarter. The annual pace of exports declined 1.3% in the year to June, from a 1.1% annual gain in May. Imports were also down 7.3% in the year to June from an 8.5% annual decline in May, highlighting weak domestic demand.

The Asian markets were mixed in July. The Hong Kong protests saw the Hang Seng drop -2.68%, while the Shanghai Composite fell -1.56% on a total return basis. The Korean KOPSI also finished -4.98% over trade disputes with Japan. Meanwhile, the Nikkei 225 managed to rise 1.16% in the month.

While there were no changes to monetary policy from the Bank of Japan (BOJ), the bank remains prepared to adopt easing measures should there be a loss in momentum towards achieving the price stability target.  Inflation remains soft, with core consumer prices increasing a slight 0.5% in the year to June. The jobless rate improved, falling to a 27-year low at 2.3% in June from 2.4% in May.


In July, the European Union leaders chose Former French finance minister and IMF head, Christine Lagarde, as the next ECB president. This coincided with the bank signalling to the market that stimulus package is to come.

GDP in Q2 rose by 0.2%, bringing annual GDP growth to 1.1%. Headline inflation in the Euro region increased to 0.2% in June from 0.1% in May, taking the annual rate up from 1.2% to 1.3%. Annual core inflation also rose to 1.1% in June, from 0.8% in the month prior, but subsequently fell back to 0.9% in the year to July.

The European markets were relatively flat throughout the month. Amid falling economic momentum and the heightened probability of a no-deal Brexit, losses were experienced by the CAC 40 (-0.36%) and the DAX (-1.69%), while gains were made by the STOXX Europe 600 (+0.23%), FTSE 100 (+2.17%),

In the UK, Boris Johnson emerged victorious in securing office as the new Prime Minister of the country, raising the likelihood of a hard Brexit on October 31. The Bank of England’s (BoE) Financial Stability Report affirmed the UK banks’ strength and resilience to face a disorderly no-deal Brexit and global economic weakening.

Headline CPI inflation held at 2.0% year-on-year in June, in line with the BoE’s target, while the unemployment rate remained steady at 3.8% in July. Wages continue to move upwards, with average weekly earnings accelerating from 3.2% in May to 3.4% in April, sitting above the 2.6% pace a year ago.

A more detailed summary is also available.

Next: Economic update June 2019

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Information current as at 30 July 2019.

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