THE DISTILLERY: Certain snip

The commentariat unanimously calls a rate cut from the Reserve Bank as holes in Australia's growth story widen.

The Reserve Bank of Australia will cut interest rates today. It’s hardly even a question. Across the board, Australia’s business commentators are laying out the case for the central bank to reduce the cash rate to 3 per cent.

The Australian’s Adam Creighton and David Uren are the only major columnists to point out that today’s expected cut will bring rates down to a level that equals the depths of the global financial crisis.

"A slowing economy has cut company profits and wages, damaging the government's plans for returning the budget to surplus and sealing the case for a pre-Christmas interest rate cut at today's Reserve Bank board meeting. Company profits are now no higher than they were in 2008, ahead of the global financial crisis, and the September quarter was the first time total wages have dropped since September 2009 in the heart of the crisis. Taxes on wages and company profits are the biggest sources of government revenue. The downturn in the first three months of the financial year shows there is no sign of the recovery the government was counting on to deliver its slender 2012-13 budget surplus of just $1 billion.”

Fairfax’s Adele Ferguson agrees that it’s not difficult to make a case for a rate cut considering the company profit numbers, along with retail sales, unofficial inflation measures, job ads and a contracting manufacturing sector.

"An even more compelling reason for a rate cut came from the latest Cost of Living Survey by Lonergan Research, which found that 77 per cent of Australians believe their day-to-day expenses have increased faster than the official inflation rate of 2 per cent in the past 12 months. Perceptions have a profound influence on consumer behaviour; if consumers believe prices are rising they will change their spending and savings habits accordingly, which ultimately influences economic growth and inflation. Retailers argue that a fall in interest rates will help consumer perceptions and thereby lift sales during the crucial weeks leading up to Christmas. But interest rates are only part of the retail solution. Online competition from international websites plays another role. While part of the problem for local retailers is their international counterparts generally have better sites, offer relatively cheaper products and provide a wider variety of products, they do get a free kick when it comes to tax.”

The Australian Financial Review’s Jennifer Hewett is more is less in line.

"Despite the official optimism on the overall strength of the economy, the holes in the growth story are big and getting bigger. Most shops certainly aren’t hearing any bells jingling yet. Defying the market’s expectation of another rise in retail sales showing up in October figures, sales were stubbornly flat for the month. Cautious consumers apparently decided discretionary spending was not on the agenda and they weren’t in the market for household goods. Only food sales showed an increase. The number of job advertisements online and in newspapers are now 17 per cent lower than they were a year ago, including falls in the previous resources powerhouses of Western Australia and Queensland. November marked the eighth straight month of decline, according to the ANZ figures.”

The Australian’s Henry Thornton, which is actually a penname for "a prominent economist,” keeps an eye on international issues as well. Thornton writes that the US recovery is beginning, but slowly, Europe is still "mired in even more intractable problems,” and growth rates in China, India and other emerging economies appear to be stabilising, but at lower rates.

"The Australian economy is in a deeply uncomfortable state. According to the Roy Morgan survey of the labour market, the actual rate of unemployment is almost twice the official (Australian Bureau of Statistics) rate of 5.4 per cent. Small business everywhere is struggling, and the vital mining industry is facing strong cost-based headwinds. Structural reform to boost productivity and reduce red tape and other impediments to doing business is desperately needed. But with goods and services inflation, including wage inflation, under control, the RBA should be keen to make its contribution to alleviating distress. A rate cut is all but certain today.”

Fairfax’s Michael Pascoe points out that there’s one more set of statistics that will drop for the Reserve Bank’s convenience – the latest set of building approval numbers are due at 1130 AEDT.

"State governments running into fiscal brick walls and the federal government pursuing a nominal surplus at any cost mean the RBA's is forced to loosen monetary policy in an attempt to compensate,” writes Pascoe. "Enjoy your rate cut.”

Fairfax’s Eric Johnston passes on the warnings from Insurance Australia Group’s commercial insurance arm CGU, might have to increase its business premium rates if the Reserve Bank cuts rate today.

Meanwhile, Fairfax’s Elizabeth Knight says the speculation that Delta might take a stake in Virgin Australia if it successfully coaxes a 49 per cent stake in Virgin Atlantic away from Singapore Airlines is misplaced.

In other company news, The Australian’s Barry Fitzgerald argues that the carve up at Anglo American is expected to present some acquisition opportunities for BHP Billiton and Rio Tinto.

The Australian’s Paul Garvey says Woodside Petroleum’s decision to invest serious cash in gasfields off the Israeli coast underlines just how troublesome the local gas sector must be getting. The Australian Financial Review’s Matthew Stevens says it underlines the "quiet intent” of new chief executive Peter Coleman.

And finally, The Australian Financial Review’s Chanticleer columnist Tony Boyd says Nyrstar has set the example for larger resources players about how to get political players in Canberra behind proposal to make their smelters more sustainable.

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