The Reserve Bank of Australia (RBA) has increased its estimate for Australian growth in 2012 but identified a number of uncertainties that threaten the positive outlook, according to its latest statement on monetary policy released today (August 10).
The statement, which is published quarterly, said economic growth was above trend in the first half of the year, causing the central bank to increase its overall estimate for growth in 2012 by 50 basis points, to 3.5%. The increase in growth was led by continued strength of resource investment and a pick-up in household consumption, the RBA said.
The central bank expected growth to return to trend in the second half of the year. "The bank's current assessment is that growth is likely to be at about trend pace in the second half of 2012, as the strong growth in domestic demand moderates," the statement said. However, the final statistic could still be subject to revision.
Other indicators were less positive. The RBA noted inflation was little changed since the previous statement in May, with the introduction of a carbon tax in July and a waning of effects from exchange rate appreciation likely to feed higher inflation by mid-2013.
"The [RBA's] forecasts rely on the Treasury's modelling of the carbon price, which indicated that it would increase the consumer prices index by 0.7% in 2012–13," the central bank said. The RBA suggested this would push inflation into the upper half of the 2–3% target range by next year.
External factors represented an additional threat to the outlook, the statement said. China was an important area of concern, as the authorities faced the difficult task of achieving sustainable growth in a rapidly changing economy, the RBA said. Nevertheless, the central bank emphasised that "the more benign inflation environment, with commodity prices having trended down" as enabling the Chinese authorities "to ease policy more aggressively in any marked slowdown".
Sluggish policy change in Europe represented an additional downside risk. "The sequence of policy responses to date, while often improving sentiment temporarily, has not been able to fix the underlying problems and so concerns have periodically intensified, and are likely to continue to do so," the central bank said.
The statement follows the latest meeting of the RBA's Monetary Policy Board on August 7, in which members voted to maintain interest rates at 3.5%.
"At today's meeting, the board judged that, with inflation expected to be consistent with the target and growth close to trend, but with a more subdued international outlook than was the case a few months ago, the stance of monetary policy remained appropriate," said Glenn Stevens, the central bank's governor, on August 7.
