Top economist Dr Shane Oliver says the RBA will have to cut interest rates below their current record low of 2 per cent.
Mr Oliver said in Australian Broker that global economic instability will leave the RBA with little choice but to cut rates by another 25 basis points before the end of the year.
“The latest bout of global growth worries warns that the global environment Australia faces remains messy,” he said.
“So while rebalancing away from mining will continue to help we may face another year with growth stuck around 2.5 per cent.”
“Ongoing commodity price weakness means ongoing pressure on the budget deficit, points to more downwards pressure on the Australian dollar to fall around $US0.60 by year end and the RBA to cut the cash rate to 1.75 per cent.”
Mr Oliver is the chief economist at the AMP and said it’s the uncertainty in the Chinese economy, possible rising interest rates in America and the US and Chinese currencies that are the main global concerns.
The weak global conditions have been reflected in the poor start to the year on the stock market, which have seen sharp declines across the globe.
Despite this, Mr Oliver says there’s unlikely to be a global recession, but we are in for continuing periods of weak global growth.
“While risks remain high in the short term there are several reasons not to be too concerned,” he said.
“In other words, if we do go into a bear market in developed market shares it is likely to be relatively shallow unlike say the GFC falls of 50 per cent plus and we continue to see shares having a better year this year than last.”