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BREAKING NEWS: Q2 GDP 0.5% for the quarter 1.4% over the year Today’s Q2 GDP numbers highlight the long term structural problems now embedded in the economy: Exports are strengthening substantially, but the Australian economy still languished at 0.5% for the quarter, and 1.4% over the year. 1. The overall GDP data masks even deeper issues and problems in the domestic economy. Strong exports, due to our trading partners, Asia, rest of the world doing relatively well overall, masks the fact that the domestic economy has been badly under-performing for some time now. The core problems are the ceaseless expansion of regulation, compliance and tax complexity burdens on small and large businesses alike.The loss of productivity is approaching a tipping point for the nation as a whole. 2. Calls for further rate cuts on this data are mis-placed. It was alway expected that the first half of 2019 would see a significant slowdown, primarily due to uncertainty and caution ahead of the federal election. We are already seeing significant improvement in property values. Key though in deterring rate cut expectations, is that since the first half of the year we have seen election uncertainty removed, significant tax reform, and most likely un-necessary rate cuts that will further fuel what would already have been a significant economic recovery in this second half of the year. Q2 was likely the low point for Australian GDP in this cycle, and any knee-jerk response by policy makers such as the RBA would be a mistake. Nonetheless, the long term loss of productivity due to extreme compliance and regulatory requirements now endemic throughout the economy, will likely see Australia continue to fall further and further behind the rest of the world. The Q2 data highlights the urgent need for truely bold economic reform. The impact for markets will only be one of relief. Both the Australian dollar and stocks are well below their true fundamental levels due to the recent exaggerated fears over the impact on Australia of the US China trade war. Exporters should be hedging their currency exposures well forward at this point. Investors should be buying stocks, particularly those with an International exposure. Clifford Bennett
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