Australia central bank forecasts lower growth, higher inflation

Canberra, Feb 10 (IANS) The Reserve Bank of Australia (RBA) released its statement on monetary policy on Friday, warning of lower GDP growth, and higher inflation than previously forecast.

The central bank’s range on growth for Australia in 2017 is now between 1.5 to 2.5 per cent, down a full 1 per cent on the growth levels they predicted in November, Xinhua news agency reported.

The fall was attributed to lower than expected gross domestic product results during the third quarter of 2016, with weaker household spending numbers playing a huge part in that contraction.

“Subdued growth in household income is likely to continue to constrain consumption growth over the period ahead,” the RBA said.

“The forecast for consumption growth has been scaled back a little to reflect recent data and a view that consumption is unlikely to grow materially faster than income over the next couple of years.”

Looking ahead, the Reserve Bank was confident that the growth will continue for Australia into 2018, with their assessment predicting a range of 2.75 to 3.75 per cent, but warns there is uncertainty due to possible change of US policies.

“There is a rising risk that more restrictive and protectionist trade and immigration policies under a new administration could harm global growth prospects,” the RBA said.

Not all economists share the rosy outlook of the Reserve Bank. Paul Dales of Capital Economics said in a note, the RBA is expecting Australia’s “slow growth” and “low underlying inflation problems” to be resolved in the next few years.

However, Dales contends this would require a period of an almost perfect economic climate, one which rarely happens, and leads him to believe the RBA will be “disappointed”.

“We believe that GDP growth will be closer to 2.0 per cent this year than 3.0 per cent and that underlying inflation won’t rise back to 2.0 per cent until 2019,” Dales said.