Australian economy's on the rise, says RBA

SYDNEY: The Reserve Bank of Australia (RBA) has raised its forecasts for economic growth as the local economy benefits from its trade links with Asia, while inflation is expected to moderate following a slowdown in labour costs.

In its quarterly statement on monetary policy released yesterday, the central bank forecast gross domestic product (GDP) to grow by 1.75 per cent over 2009 before rising by 3.25 per cent in the year to December 2010.

This is an upward revision to the previous statement in August where the RBA forecast GDP to grow 0.5 per cent in 2009 and expand by 2.25 per cent over 2010.

Australia's GDP grew by 0.6 per cent in the year to June 2009, official data showed.

The RBA said the upward revision in economic growth reflected overall stronger data in the past three months and an improved outlook for the local economy.

"Although consumption growth has moderated relative to the first half of 2009, following the end of the fiscal payments to households, spending appears to have been relatively resilient.

"Business investment is no longer expected to fall sharply, with spending supported by the improvement in business conditions, growth in Asia, the positive outlook for the resources sector and the fiscal stimulus measures," the RBA said.

The local economy has grown modestly over the first half of 2009, in contrast to other developed economies, and this expansion is expected to have continued in the second half of this year, the RBA said.

"Confidence has improved and spending has been supported by stimulatory settings for both monetary and fiscal policy.

"The Australian economy has also benefited from the strong bounce-back in Asia, particularly China, with export volumes remaining broadly unchanged during a period in which global trade fell markedly."

Annual underlying inflation is forecast to ease gradually while it still remains above the bank's target range of 2 to 3 per cent, it said.

Underlying inflation, which excludes volatile price movements, was 3.5 per cent in the year to September 30.

The bank now forecast underlying inflation to trough at 2.25 per cent in December 2010, up from the 2 per cent predicted in August.

"Looking ahead, inflation is expected to moderate further, reflecting the easing in capacity pressures over the past year and growth in labour costs," the RBA said.

"In addition, the recent appreciation of the exchange rate has unwound the upward pressure on tradables prices from the depreciation over the second half of 2008."

The Australian dollar has appreciated around 38 per cent against the US currency since March this year.

The RBA noted the outlook for the labour market had improved in the past three months and said job growth would modestly regain pace next year.

Australia's jobless rate fell 0.1 percentage points to 5.7 per cent in September, official data showed.

- AAP