The RBA is painting a positive outlook for Australia’s economy, despite the end of the mining investment boom nearing and the high dollar weighing on growth.
RBA assistant governor of economics Dr Christopher Kent expects economic growth to be a little below average in 2013 as the mining investment boom peaks.
But he says growth should improve in 2014 as low interest rates help underperforming sectors of the economy like retail, construction and housing start to pick up steam.
“Our expectation is that there will be a gradual recovery in non-mining business investment and further moderate growth of dwelling investment,” he told the Bloomberg Australian Economic Summit.
Dr Kent said the Australian dollar was likely to remain high even as mining investment waned, which would weigh on growth over the next few years.
But he said the economy had weathered the high exchange rate well so far and businesses were restructuring to cope with it.
“It is a very painful process for trade-exposed industries and there has been quite a bit of evidence that those industries are responding to that (the high dollar),” he said.
Dr Kent said the RBA had cut the cash rate significantly in the past 18 months, partly to offset the effects of the high dollar.
“The cash rate is lower than it otherwise would be if the exchange rate wasn’t where it was.
The RBA cut the cash rate 1.75 percentage points between November 2011 and last December, bringing it to its current level of three per cent.
Dr Kent said the lower interest rates appeared to be having the desired impact on the economy, with notable improvements in consumer confidence and retail sales since the start of 2013.
Although mining investment is expected to fall after peaking some time in 2013, Dr Kent said it would still remain higher than normal.
“While the exact timing of the peak in mining investment and the profile thereafter are uncertain, there is still a sizeable amount of work in the pipeline, including a number of large LNG projects,” he said.
“This means that the level of mining investment is likely to remain quite elevated for a time.”
