Australia’s central bank yesterday scaled back its forecasts, warning of muted growth and a “subdued” outlook as the commodities-driven economy transitions away from mining.
The Reserve Bank of Australia (RBA) said it expected growth of 2.5 percent and inflation of 2.25 percent for the year ending on Dec. 31, compared with its February forecasts of up to 3 percent for both.
“Overall, the subdued outlook over the next year or so continues to reflect the approaching peak in mining investment, ongoing fiscal consolidation and the high level of the Australian dollar,” the RBA said in a quarterly statement on monetary policy.
The RBA said mining investment “is still expected to be close to its peak” with a gradual shift toward the non-mining sectors of the economy and a greater emphasis on domestic spending.
“While there are signs that this rebalancing is beginning, there remains considerable uncertainty about how it will proceed,” the bank said.
It said Australia’s economic expansion was expected to be “a bit below” long-term averages this year, before returning to levels of up to 3.5 percent next year and 4 percent in 2015.
Australian Treasurer Wayne Swan said the bank had described its outlook on the major indicators as “essentially unchanged” from February and said Australia remained well-positioned by global standards.
“This report today I think confirms the underlying strength of the Australian economy,” Swan told reporters.
“We’re making a transition from an investment boom in resources to a very strong export-led surge. We’re moving from the peak of the investment phase in resources and moving to a new high in terms of ... export volumes,” he said.
Swan said “these transitions from resource-led growth to non-mining growth are not always smooth — big transitions rarely are.”
The RBA slashed interest rates to a record low 2.75 percent this week in a bid to stimulate Australia’s non-mining economy, citing sluggish growth and rising unemployment as well as the protracted strength of the Australian dollar.
The commodities-linked currency was hovering just above parity with the greenback at US$1.0076 in afternoon trade yesterday. It has not dipped below US$1 since May 14 last year.
The RBA said the outlook for public spending was clouded by “considerable uncertainty” ahead of the Sept. 14 national elections, with a sharp fall in revenues expected to be revealed in next week’s budget.
Australian Finance Minister Penny Wong on Tuesday warned of a A$17 billion (US$17.2 billion) slump in government earnings due to the impact of a strong currency on corporate earnings.