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RBA raises Australia’s growth forecast

A pedestrian walks past a store advertisement for silver cutlery in central Melbourne yesterday. The Australian central bank yesterday raised its forecast for economic growth next year to 3.25 percent from 2.25 percent. PHOTO: REUTERS

Australia’s central bank said yesterday the country is accelerating faster than expected out of the global downturn thanks partly to demand from China, but warned against becoming too reliant on just a few countries for the recovery.

In its latest quarterly statement on monetary policy, the Reserve Bank of Australia (RBA) more than tripled this year’s growth forecast to 1.75 percent from the 0.5 percent it predicted in August and raised its forecast for next year to 3.25 percent from 2.25 percent.

RATE HIKE

The RBA — which last month became the first central bank of a developed economy to raise interest rates and hiked them again this week — signaled it would keep winding back a series of cuts that took rates to five-decade lows this year to keep the economy moving.

“A further gradual lessening of monetary stimulus is likely to be required over time if the economy evolves broadly as expected,” the bank said.

Australia’s stock market rallied yesterday, with the main benchmark rising nearly 2 percent. Since the start of the year, Australia’s currency has risen more than 30 percent while the stock market has climbed almost 24 percent.

There is growing evidence that Australia has weathered the economic downturn well.

The bank credited lower rates, some A$42 billion (US$37 billion) in government stimulus spending and “the strong bounce back in Asia, particularly in China.”

“Asia is at the forefront of the global recovery,” it said.

MINERALS

Helping drive Australia’s growth are the huge amounts of iron ore and other minerals it exports to China, Japan, South Korea and other nations.

The bank said export volumes had stayed broadly unchanged despite a sharp downturn in global trade and investment in the sector — especially in liquefied natural gas — is expected to grow.

“This expected rise in investment — which is already at a high level relative to GDP and compared with other developed economies — should further boost the supply side of the Australian economy, although as it takes place, short-term capacity restraints could again emerge in part of the economy,” the bank said.

In a speech late on Thursday, RBA Governor Glenn Stevens cautioned that outsized growth in the share of the economy taken up by mining could drain workers and other resources from other sectors, potentially reducing the economy’s resilience.

“The emergence of China and India is a benefit to Australia, but we stand to have a heightened exposure to anything going seriously wrong in those countries,” Stevens said.

Still, “such concentration ... may well be worth accepting if the return from doing so were high enough, as it appears they might be,” he said.
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