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Financial News: RBA Lowers GDP Growth Forecast

RBA Lowers GDP Growth Forecast

02/06/2020 - 23:20:00 (RTTNews)

(RTTNews) - The Reserve Bank of Australia lowered its growth projection as the recent bushfires, drought and the outbreak of coronavirus weigh on exports.

In its quarterly Statement on Monetary Policy, released Friday, the central bank projected growth to remain at 2 percent in the year to June 2020 compared to the previous forecast of 2.5 percent.

Overall, GDP growth is expected to have been 2 percent over 2019. The bushfires and the coronavirus are set to weigh moderately on growth in late 2019 and into early 2020, but growth should recover relatively quickly, the bank noted.

The growth rate is expected to improve to 3 percent in the year to June 2021. According to RBA, consumption growth will rise gradually, underpinned by the improvement in housing market and household income growth.

Public demand and business investment are also expected to support growth over the forecast period.

Exports are expected to increase over 2020, led by resource exports, although the recent bushfires and the outbreak of coronavirus are expected to weigh on service exports and the drought is expected to depress rural exports.

The jobless rate is seen at 5.25 percent in the year to June 2020, unchanged from the previous forecast. The rate will then fall to 5 percent next year.

The bank also downgraded its inflation outlook for the year ending June 2020 to 1.75 percent from 2 percent. The projection for next year was retained at 1.75 percent.

RBA Governor Philip Lowe said the impact of the coronavirus will be more than the SARS outbreak in 2003.

In a speech, he said "China is a larger part of the global economy and it is more closely integrated, including with Australia, so the international spillovers could be larger than they were back in 2003."

Looking forward, Lowe said the bank is expecting progress to be made towards the inflation target and full employment, but that progress is expected to be only gradual and there are uncertainties.

If the unemployment rate were to be moving materially in the wrong direction and there was no further progress being made towards the inflation target, the balance of arguments would tilt towards a further easing of monetary policy, he added.

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