Low rates don't matter as gov'ts slash spending

Low rates don't matter as gov'ts slash spending

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Record low interest rates will make little difference to the property market while governments cut back on spending and consumer confidence remains weak, a leading economist has claimed.

The property market will see little benefit from the Reserve Bank of Australia's (RBA) decision earlier this week to cut the official cash rate by 25 basis points to an all-time low of three per cent, Australian Property Monitors (APM) senior economist, Andrew Wilson, said.

“Consumers are very sensitive to job security and cost of living and that is what’s keeping the property market flat at the moment overall,” Dr Wilson told Real Estate Business.

According to Dr Wilson, the RBA and the government are employing opposing strategies to keep the economy steady, and neither will help the property market.

“Firstly, interest rates cuts are always a positive for the economy, it improves housing affordability and lifts confidence amongst buyers, sellers and investors,” he said.

“However, what we are seeing at the moment is expansionary monetary policy with reduced interest rates but [in contrast] we are seeing contractual fiscal policy with government spending being reduced at both the state and federal level.

“So we have this cross purposes in terms of where our economic policy is going.

“On one hand we are improving our balance sheet in terms of our mortgages and improving our investors' bottom line but on the other hand we are seeing the cost of living increasing, and this is why we haven’t seen that affect in the housing market from various interest rate falls.”

Dr Wilson’s comments come at the same time the Australian Bureau of Statistics (ABS) released the latest unemployment figures, which showed Australia's seasonally adjusted unemployment rate decreased 0.1 percentage point to 5.2 per cent in November.

The ABS reported the number of people employed increased by 13,900 to 11,546,400 in November. The increase in employment was driven by increased part-time employment, up 18,100 people to 3,414,200 and was offset by decreased full-time employment, down 4,200 people to 8,132,200.

The increase in employment was largely driven by increased female part-time employment.

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