Australia’s central bank yesterday scaled back its near-term forecasts for economic growth, saying mining investment was unwinding faster than expected and a pick-up in China was unlikely this year.
The Reserve Bank of Australia (RBA) said it now expected the resources-driven economy to expand 2.25 percent in the year to December 31 and 2.5 percent in the 12 months to June 30 next year.
It had expected 2.5 percent and 2-3 percent respectively in its May forecasts.
“The slightly weaker outlook than a few months ago reflects, among other things, the assessment that growth in China is now unlikely to pick up much, if at all, in coming quarters,” the bank said it its quarterly statement on monetary policy.
The bank said its outlook for mining investment had been revised lower after capital expenditure surveys showed “a significant decline” in resources industry spending and equipment imports amid softening commodity prices, particularly in the coal sector.
“Given this, the expectation is that mining investment will decline somewhat over the next year or so before falling away more noticeably thereafter,” the bank said.
The bank slashed its official interest rate to an unprecedented 2.5 percent this week in a bid to stoke the non-mining areas of Australia’s economy as its decade-long Asia-led commodities boom unwinds.
It cited growing unemployment as a factor in the cut, after the ruling Labor party’s jobless forecast ballooned to 6.25 percent for this financial year.
Last month’s unemployment level came in at a stable 5.7 percent on Thursday, but the economy shed 10,200 jobs as Australia confronts a painful transition away from its dependence on mining to other drivers of growth.
The RBA said it had also lowered its employment projections and the jobless rate was “expected to continue its recent upward trend over the next few quarters.”
“Consistent with the slowing growth in resource-related activity,” the bank said that employment growth had been flat in resource-rich Western Australia since the end of last year and there had been an uptick in joblessness.
The bank also noted that the headline unemployment rate “may not fully capture the extent to which conditions in the labour market have softened.”
“Firms may have responded to weaker demand by reducing the hours worked by their staff rather than by reducing the number of employees,” it said.
The RBA’s inflation forecasts were unchanged from May, at 2.25 percent for the year ending December 31, and it offered no new clues on further rate cuts. Both Labor and the conservative opposition are campaigning on economic issues ahead of Sept. 7 national elections.