Australia's central bank expects stronger growth and hiring to help lift inflation, but warned of risks to the global outlook from a worsening trade war and weaker China.
In an upbeat assessment of the economy's prospects, the Reserve Bank reiterated that higher interest rates “are likely to be appropriate at some point,” in its quarterly Statement on Monetary Policy released in Sydney Friday. It also repeated that there isn’t a strong case for a near-term move.
“Consumption growth is expected to be supported by ongoing growth in employment and a modest pick-up in wages growth,” the central bank said. But there remains “uncertainty about how households may respond to significant housing price declines.”
Australia’s economy has been bolstered by a record-low cash rate since 2016 as the RBA tries to drive wages higher; consumer prices haven’t been at the midpoint of the 2-3 percent target since mid-2014. The RBA’s goal of laying the ground for the first rate increase since 2010 is at risk from a trade war between the U.S. and China, and the latter’s economy weakening.
“The risks to global growth from trade protectionism have intensified,” the RBA said, warning of the impact of further measures. “This would have further direct effects on trade, but may also affect investment and confidence, which could have more negative consequences for global growth.”
The RBA noted conditions in China’s industrial sector have weakened and the nation’s property market posed risks. It also warned that economies like Taiwan and South Korea are threatened by the escalating trade dispute due to their position in the global supply chain.
Australia’s currency has weakened as the central bank stood pat while the U.S. Federal Reserve steadily raised rates. The RBA made it clear that further depreciation would be welcomed as it would boost the competitiveness of locally produced goods.
“The resulting increase in domestic income and employment would also support growth in business investment and consumption,” the central bank said.
“Inflation would also be likely to increase by more than currently forecast, because of stronger domestic economic conditions and the increase in the prices of imported goods and services.”
Source : Bloomberg