• We have removed our expectation for a rate rise in late-2020 and now expect the cash rate to remain on hold over the forecast horizon. While our central case is for the cash rate to remain on hold, based on the balance of risks, the next move could well be down – potentially as soon as H2 2019.
• While labour market conditions have been positive, inflation remains meek – with little global and domestic inflationary pressure at present. Growth was solid through the first half of 2018 but has slowed in H2 2018, with a weak GDP print in Q3, and high frequency indicators pointing towards a similar outcome in Q4. Further, our internal data points to a soft start in 2019 with retail sales still weak and business conditions trending lower, though not as dramatically as suggested by the December NAB survey.
• We have not materially changed our forecasts for growth and still see the outcomes as broadly around trend (Note: NAB’s view of trend is 2¼ to 2½%, lower than the RBA’s). We see a final outcome of 2.9% y/y for 2018 GDP growth (Q4 GDP of 0.4% q/q) with growth slowing to 2.4% y/y in 2019. Wage growth is expected to pick up gradually but remain low with only modest further gains on the unemployment rate from here.
• We expect house prices to continue to decline in Sydney and Melbourne but to do so in an orderly fashion. We see the risk to households driven by a number of other headwinds, namely weak income growth, and at this point see little evidence of large negative wealth effects. We have, however, factored in a relatively sharp decline in residential building activity related to the cooling in the housing market.
• With inflation remaining weak and growth weaker than the RBA expected, the risk is that the Bank will act to bolster the economy should the labour market show any signs of deterioration or consumer spending weaken further.

Find out more in the NAB Changes Rate Call: February 2019