After spending a good part of late 2008 worrying about an economic crisis that didn’t occur, at least not in Australia, I find it hard to worry too much about the latest international news that is panicking markets across the world. China appears to be slowing down, but a stimulus package is likely (see Businessweek on Understanding the China slowdown). And the weaker than expected US jobs report everyone is worrying about merely tells us that the US recovery will take a bit longer than expected, not that the US is heading back into recession.

I expect the recent international data will spook the RBA Board tomorrow and a rate cut is very likely. In the Minutes of the April meeting the Board clearly signalled there was scope to cut rates even further, and the renewed anxiety in markets will give them justification to cut rates sooner rather than later, although probably only by 25 basis points – as another 50 basis points cut runs the risk of creating the perception that the RBA Board is panicking.

Hence I think former RBA official Paul Bloxham, now at HSBC, has called it right. As noted on ABC news (Economists divided on Reserve’s next move):

HSBC Australia’s chief economist Paul Bloxham changed his rate forecast this morning and said he is only expecting a 25 basis point move by the RBA tomorrow.

“Overall we still think the Australian economy looks as though it is in fairly good shape,” Mr Bloxham.

“The unemployment rate is low, we expect some solid GDP numbers this week.

“But clearly the risks of a more substantial global downturn have increased given the loss of momentum in some of the global indicators over the weekend.”

So we have reason to remain hopeful, but the RBA had better cut rates again just in case.