China’s economy may have already reached bottom and its emergence as a major industrial power will continue for years, Australia’s central bank chief said yesterday.
Australia, now teetering on the edge of a recession, has “plenty of potential” to benefit from China’s long-term growth, Reserve Bank of Australia Governor Glenn Stevens said.
Chinese economic growth had “slowed down far more than was anticipated” late last year, Stevens told a routine parliamentary inquiry into the Australian economy.
“There are some data sets that show something that looks like a bottom,” he said, referring to Chinese economic indicators for last month.
Reports have shown a rise in bank lending and a slower rate of contraction in manufacturing.
Stevens said it was too early to tell whether the “tentative indications of a turn for the better in China” would continue.
“I think what we’ve had is a reminder that China is an economy that has business cycles like all of us and it was never going to grow every year at 12 percent,” he said.
“It seems to me still the case that the emergence of China as a large industrialized economy has years and years to run,” he said.
“So it will be a volatile ride on occasion as it is today, but I can’t believe that the emergence has finished and it seems to me that Australia has plenty of potential to benefit from that over the long run as we did for the last couple of years,” he said.
Australia’s 17-year run of economic growth before the current slump was tied to burgeoning Chinese and Indian demand for its raw materials such as iron ore, coal and natural gas.
Hopes that a Chinese economic recovery might be taking shape were dampened by figures that showed China’s exports plunged 17.5 percent last month amid waning global consumer demand.
Meanwhile, the central bank was prepared to cut interest rates further but they are unlikely to drop to near zero as they have in some other countries, Stevens said.
“We’ll be prepared to go low enough to what is needed,” he said. “It is not my present expectation we’re going to find ourselves at nothing.”
The bank has slashed a total of 400 basis points off the official rate since September, taking it to a 45-year-low of 3.25 percent this month, on concerns over the impact of slowing world growth.
In the US, the federal funds target rate is zero to 0.25 percent while Japan’s key lending rate is 0.1 percent.
Stevens said Australian market expectations were “toying” with a bottom in the cash rate of 2.0 percent or 2.25 percent and he had “no particular desire to encourage or disabuse them” of those expectations.
“The long-run prospects for Australia have not deteriorated by as much as we may all be feeling just now,” he said.