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RBA lifts Australia growth forecast

Friday, May 5, 2017 - 13:05

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The Reserve Bank of Australia said it expected the economy to expand 2.75-3.75 per cent in the year to June 2018, up 25 basis points from its February forecast on expectations of a sharp increase in liquefied natural gas (LNG) exports.

[SYDNEY] Australia's central bank raised its growth forecast for the next financial year but tipped no interest rate moves for 2017 owing to uncertainty surrounding consumer spending.

The Reserve Bank of Australia said it expected the economy to expand 2.75-3.75 per cent in the year to June 2018, up 25 basis points from its February forecast on expectations of a sharp increase in liquefied natural gas (LNG) exports.

"Year-ended (gross domestic product) growth is expected to pick up as the drag from mining investment comes to an end and the ramp-up in resource exports continues," the RBA said in its quarterly Statement of Monetary Policy.

"LNG exports are expected to continue to grow strongly over the next few years, contributing around 0.5 percentage point to GDP growth in each of 2017 and 2018."

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Australia is making a rocky transition away from a dependence on mining investment as an unprecedented boom ends, but the economy has so far avoided slipping into recession.

The RBA left the cash rate at a record-low of 1.50 per cent Tuesday, while March quarter headline inflation hit 2.1 per cent, returning to the bank's target range of 2.0-3.0 per cent.

The central bank said in the Friday statement that increases in underlying inflation - which strips out volatile items and is more closely watched by the central bank - over the next year or two would be "quite gradual" because of low wages growth.

"Although it seems unlikely that wage growth will slow much further, wage pressures are expected to pick up only gradually, as the effects of structural adjustment after the mining investment boom - which have weighed on wage growth - continue to wane," the RBA added.

It also cautioned on the outlook for consumer spending on the back of high household debt. Australia has a household debt-to-GDP ratio second only to Switzerland, according to the Bank of International Settlements.

"If indebted households believe that their prospects for income growth have weakened, they could choose to pay down debt faster and consumption growth could be lower than forecast," it said.

AFP

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