RBA cuts growth forecast
The prospect of a rate rise in the next few months has fallen after the RBA revised growth for 2011 downwards in its August monetary policy statement.
“Growth over 2011 has been revised downwards since the May statement, due to a slower-than expected recovery in coal production and, to a lesser extent, a downward revision to consumer spending as domestic and international concerns have weighed on sentiment,” the statement reads.
“The medium-term outlook continues to be characterised by the significant pipeline of resources-sector investment – with a number of large projects already underway – and by strong growth in resource exports.”
The GDP is forecast at 2% for 2011 and at 4.5% in 2012.
The two-speed economy is highlighted as a drag on growth.
“There is a large divergence between the mining and related sectors and the rest of the economy, with the cautious behaviour of households, the unwinding of the fiscal stimulus and the high exchange rate weighing on a number of industries,” the RBA says.
“Outside of the mining sector, business surveys suggest that, in aggregate, conditions are around long-run average levels while measures of confidence have recently fallen to below-average levels.
“However, this masks considerable divergence across industries. Conditions in the retail sector remain very weak due to subdued consumer spending, and parts of the construction industry not exposed to the mining boom are feeling the effects of weak residential and non-residential building as well as the fading of the fiscal stimulus.”
Mining investment is expected to rise from around 4% of GDP in 2009/10 to more than 6% in 2012/13 while non-mining investment will remain weak in the near term, but gradually pick up later in the forecast period.
Besides the economy slowing down over the remainder of 2011, the RBA also forecasts inflation to begin trending down, though it forecasts “significant volatility in headline CPI inflation over the next few years”.
It is forecast to fall modestly from 3.6% in the June quarter to 3.5% in December, before easing to 2.5% by June 2012.
The underlying inflation outlook excluding the carbon tax is for 3.25% in 2011, 3.0% in 2012 and 3.25% in 2013.
“In the near term, several volatile items – fruit, vegetable and fuel prices – are continuing to have a large influence on the headline inflation profile, with year-ended CPI inflation likely to remain above the target band for the remainder of 2011, before falling sharply in early 2012,” the RBA says.
“There would subsequently be a temporary effect from the introduction of the carbon price.
Despite the revised growth expectations for the remainder of 2011, Westpac said over all growth outlook remained positive and is "still comfortably above trend".
Westpac expects the non-mining sectors of the economy to contribute much less growth and labour demand than indicated in the RBA's forecasts.
