Australia’s central bank governor said yesterday the economic slowdown should be one of the “shallower” the country has faced and played down fears of a double-dip recession.
Reserve Bank of Australia chief Glenn Stevens, in bullish remarks to parliament’s economics standing committee, tipped massive government stimulus to offset a fall in consumer spending.
He said Asian giant China, a key market for Australia’s huge resources sector, would pull through stronger than expected, adding that the prospect of a second worldwide slump looked increasingly unlikely.
“On the basis of the information to hand at present, this may well turn out to be one of the shallower recessions Australia has experienced,” Stevens said.
“The global economy could suffer another setback of some kind,” he said. “The likelihood of that has declined in our view, but the possibility remains.”
Stevens also said that inflation would not fall as much as feared and predicted unemployment, steady at 5.8 percent last month, would peak at “noticeably less” than the official forecast of 8.5 percent.
“Chances are now that the peak is going to be noticeably less than that,” he said. “The chances are now we are not going to get the 8.5 percent peak in unemployment.”
He added that interest rates, slashed to a 49-year low of 3.0 percent, would also have to move back towards “normal levels”.
Australian Prime Minister Kevin Rudd sounded a more cautious note, warning unemployment and interest rates would both rise and budgets would have to fall to return to surplus.
“These things will make things hard for the future,” he told commercial radio. “We must embark on this road to recovery but for anybody to assume this is going to be a bed of roses, it won’t be.”
Australia dodged a technical recession, defined as back-to-back quarterly contractions, in June, making the country the best-performing Western economy at the time.
The central bank earlier flagged the start of a recovery this year, raising its 2009 growth forecast to 0.5 percent rather than a 1.0 percent contraction.
Australia is on course to become one of the first countries to raise interest rates in the wake of the worst global slowdown since the 1930s Great Depression.
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