The smart money says we should expect another interest rate cut on Tuesday week, following the RBA boss, Dr Phil Lowe, spilling his guts at a speech on Wednesday. Unlike their predecessors, central bankers must have agreed to become big ‘hint-merchants’ because Mario Draghi at the European Central Bank and Jerome Powell at the USA’s Federal Reserve have been falling over themselves to let us know that a rate cut is on the cards.

This has led our local economists to tip that July will see a rate cut and then on Cup Day, the borrowers of Australia will get a dividend courtesy of the Reserve Bank. Hopefully, the banks will be able to pass on a decent chunk of the cut. So far, CBA and NAB have told us they expect July and November cuts but this is only their best guess.

There are two big variables challenging the Oz economy right now.

The first is that there’s a lack of lending/borrowing, thanks to the house price slide and the banks being terrorized by the Royal Commission and APRA to be over-zealous in testing out the ability of borrowers to repay.

Second, Donald Trump and his trade war have not been good for world and Chinese economic growth and that has knock-on effects for us.

Two days ago The New York Times led a take on the trade war’s impact on growth this way: “President Trump’s trade war is chilling business investment, confidence and trade flows across the world, a development that foreign leaders and business executives say is worsening a global economic slowdown that was already underway.”

The column went on to single out us: “Weakness in China, driven in part by fallout from the trade war, has spread to Germany, Australia and other nations, raising supply chain costs, chilling exports and worrying political and economic leaders.”

The US President says the US net worth is up $14 trillion since the tariffs were implemented, while he reckons China is down $20 trillion. He could be cooking the books (would he do that?) but this take on the matter by Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, explains why we’re slowing and why Donald’s fingerprints are all over the ‘crime’.

“China is the biggest trading nation in the world [and] the idea that you could slow down the global growth engine and not affect other countries is just not credible.”

Six months ago, our Dr Phil was hoping he wouldn’t need rate cuts because he agreed with the world view that the US was growing so well that it would be facing rate rises (three in fact) and that a trade deal would be struck sooner rather than later, so the second Trump tranche of tariffs on China wouldn’t happen. And even the outlook for European growth was thought to be getting better and Brexit would be sorted, albeit with a bit of drama.

He and probably all central bankers were wrong on all four counts, which is why we’re in rate cut territory.

The combined impact of less money going to borrowers, as house prices fell on top of Trump tariffs, has changed both RBA growth forecasts from over 3% to be lucky to be over 2%.

But could our banking economists be too negative? Would two cuts be enough to kickstart our economy?

I can only see this being the case (and it’s the one that Dr Phil would love) if Donald and Xi Jinping kiss and make up at the G20 meeting next Friday in Japan.

Of course, we have learnt to expect the unexpected with dear Donald, which is why Dr Phil is prepping us for possibly three cuts. However, if the deal comes sooner than expected (remember, expect the unexpected), then the stock market will go up another peg and it could easily drag both business and consumer confidence up worldwide.

As The New York Times reported “Multinational companies are already shifting supply chains and delaying capital spending in response to Mr. Trump’s tariffs on Chinese goods and foreign metals.”

Last month, troubled trade talks saw the US president slam tariffs on $US200 billion worth of goods. If another breakdown happens, he could easily carry through with his threat to slam more tariffs on $US300 billion worth of Chinese products.

Clearly, we need a trade deal fast to avoid two more rate cuts this year. And we need local lending to increase. Yesterday, the AFR revealed that “Westpac has unleashed a fresh wave of property lending by relaxing serviceability conditions on low risk home loans, immediately increasing the borrowing capacity of aspiring home owners by as much as 8 per cent.”

The serviceability floor, which is the minimum interest rate a borrower must be able to pay, has been reduced to 6.5% from 7.25%. That change will spread from bank to bank and borrowing should pick up. (* See below for a last minute change to reality!)

The Reserve Bank has a history of two quick interest rate changes and then a period of wait-and-see before moving again if needed. This has driven the thinking of NAB’s and CBA’s economics teams but their November cut call rests on their less than rosy view on our economy any time soon.

But this might be too negative a view so if:

• Donald cracks a trade deal soon

• another interest rate cut comes in July

• the lower dollar persists

• easier access to loans eventuates

• the tax cuts are accessed by many Aussies early in July

• and the ongoing positivity from the surprise election win by the Morrison team is sustained

then we could show enough positive growth signs such that the RBA won’t have to cut on Cup Day.

On present form (Donald’s playbook and our current economic performance) this call of mine looks more like a longshot. But remember, favourites have a pretty poor record in the Cup.

Go Australia, you good thing!

On Thursday APRA bounced Westpac and so it has been forced to welch on its promise to make lending easier. This makes a third rate cut more likely unless Josh Frydenberg steps up to the plate and bounces APRA. See my Weekend Switzer story tomorrow.)