Since June 2007 the RBA has increased interest rates four times and the lagged impact of these hikes is likely to cease spending by a heavily indebted household sector through 2008. In fact, interest payments accounted for 11.7% of annual household disposable income. In addition, March home-building approvals fell six times as much as economists forecast and sales of newly built houses decreased for a second month. Furthermore, consumer confidence dropped in April to the lowest since 1993, and companies remained pessimistic for a third consecutive month in March.
Indeed, the outlook for the Aussie economy doesn’t look promising and its Gross Domestic Product is expected to slip in 2009 as a response to weaker growth in most Asian economies. For instance, new export contract terms for coal and iron ore are negotiated with Asian countries only once a year, and prices negotiated for annual contract period starting April 2009 are likely to be lower than those in the current negotiations for the year starting April 2008.