We didn't get that rate relief, but Australia remains the lucky country

Sydney Morning Herald

a day ago

The reason the Reserve Bank can be a bit more indulgent on its monetary policy in future is because the inflation monster has largely been tamed, and this has been achieved without any debilitating increase in unemployment.
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So there is another tick.
And while many economies are panicking about the effects of Donald Trump's imposition of tariffs and their rising inflationary impact, evidence suggests that Australia, perversely, will be a net beneficiary of this otherwise debilitating trade policy.
Of course, the uncertainty of the ad hoc and rapidly changing and unpredictable imposition of US trade levies brings with it uncertainty for all countries including Australia, and raises the risk of slower global growth.
But according to a report this week from the Productivity Commission, its modelling shows that if one excludes the impact of uncertainty, 'the proposed US tariff changes could have a small, positive effect on Australia's economy. The results suggest that cheaper imports from the rest of the world, and an outflow of productive capital from the US and highly 'tariffed' economies, would slightly increase Australian production.'
It was only a few months back that headlines screamed of the damage that would be wrought by tariffs on our steel and aluminium. These fears were, of course, overblown given our exports of these products account for less than a combined $1 billion a year.
Rather, the Productivity Commission found that US 'Liberation Day' tariffs and tariffs on aluminium, steel and automobiles and parts could lead to an increase in Australian real GDP of 0.37 per cent.
It says that the impact of Trump's tariffs would be negative on Australia if our government sought to impose retaliatory tariffs, but there is no suggestion that the Albanese government would do so.
Thus, by several measures Australia is sitting in a sweet spot relative to many – if not most – other countries.
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The largest shadow on the horizon is the potential fall in demand from China for Australian iron ore and the associated decline in its price. This would play poorly for Australia's sovereign balance sheet, putting pressure on the budget deficit.
Based on an expected rate cut next month of 25 basis points to 3.6 per cent, a $600,000 mortgage would cost $100 a month less and take to $300 the monthly savings since the Reserve Bank started easing monetary policy in February.
And while the US market was rattled and fell by almost 1 per cent on Monday night about the prospects of large tariffs being placed on Japan and South Korea, the extension of a deadline to August 1, 2025, suggests a better trade agreement over the next couple of weeks.