IMF lauds Aus­tralia's growth

The Pak Banker - - Front Page -

WASH­ING­TON

The Ex­ec­u­tive Board of the In­ter­na­tional Mone­tary Fund (IMF) to­day con­cluded the Ar­ti­cle IV con­sul­ta­tion with Aus­tralia.

The Aus­tralian econ­omy has been grow­ing faster than most ad­vanced coun­tries, ben­e­fit­ing from its trade link­ages with Asia, par­tic­u­larly China. Growth ac­cel­er­ated from 2¾ per­cent in the sec­ond half of 2011 to 4 per­cent in the first half of 2012, driven by pri­vate do­mes­tic de­mand and ex­ports. How­ever, growth has been un­even with min­ing-re­lated sec­tors ex­pand­ing strongly, in con­trast with be­low-trend growth in other sec­tors. The high Aus­tralian dol­lar is weigh­ing on trade-ex­posed man­u­fac­tur­ing and tourism, which along with the un­cer­tain global eco­nomic out­look is con­tribut­ing to a broadly pes­simistic mood, and weak in­vest­ment growth out­side the min­ing sec­tor.

Aus­tralia's terms of trade peaked in 2011, push­ing up the real ef­fec­tive ex­change rate fur­ther and nar­row­ing the cur­rent ac­count deficit to 2¼ per­cent of GDP. By the sec­ond quar­ter of 2012, the terms of trade had fallen by around 10 per­cent, driven by de­clines in spot prices for iron ore and cok­ing coal of 25 and 30 per­cent re­spec­tively. In re­cent months, how­ever, the Aus­tralian dol­lar has re­mained high de­spite lower ex­port com­mod­ity prices and the weaker global out­look, in part re­lated to port­fo­lio re­al­lo­ca­tions of large re­serve hold­ers to­ward Aus­tralian gov­ern­ment debt.

Con­sumer Price In­dex (CPI) in­fla­tion has eased with un­der­ly­ing mea­sures of in­fla­tion re­main­ing near the mid­dle of the 2-3 per­cent tar­get band, largely due to the de­clin­ing trad­able goods prices as­so­ci­ated with the ap­pre­ci­a­tion of the ex­change rate. Wage growth is also mod­er­ate, just marginally above its 10 year av­er­age in June 2012 with pri­vate sec­tor wage growth faster than in the pub­lic sec­tor. The la­bor mar­ket has per­formed well in in­ter­na­tional com­par­i­son, with a low un­em­ploy­ment rate at be­low 5½ per­cent.

The Re­serve Bank of Aus­tralia (RBA) has low­ered the pol­icy rate by 150 ba­sis points since Novem­ber 2011, with the most re­cent cut in Oc­to­ber 2012. Ini­tially, when in­fla­tion mod­er­ated at the end 2011, the RBA moved to re­move a mildly re­stric­tive mone­tary pol­icy stance. Dur­ing 2012, as the out­look for the global econ­omy de­te­ri­o­rated ac­com­pa­nied by a slightly weaker do­mes­tic out­look for 2013, and with pro­jected in­fla­tion con­sis­tent with the tar­get, the RBA shifted to an ac­com­moda­tive mone­tary pol­icy stance. In­ter­est rates for bor­row­ers, a key in­di­ca­tor of the over­all stance, are now slightly be­low their medium-term av­er­ages.

The 2011/12 un­der­ly­ing cash deficit came in at 3 per­cent of GDP, about 1½ per­cent­age points higher than fore­cast dur­ing the 2011-12 Bud­get, due to both weaker re­ceipts and higher ex­pen­di­ture.

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