RBA’s Battellino Says Australia Should Weather U.S. Slowdown
Reserve Bank of Australia Deputy Governor Ric Battellino said there are “grounds for optimism” his nation’s economy will weather a U.S. slump and extend a two- decade expansion driven by demand from Asia.
“The expansion of China has had an overwhelmingly positive impact on the Australian economy over the past 10 to 15 years,” Battellino said in the text of a speech today in New York. “That is not to say that U.S. developments no longer matter.”
Investors in RBA cash rate futures predict Australia’s central bank will lower the developed world’s highest interest rates by 1.25 percentage points over the next 12 months. In his speech, Battellino likened the current situation to 2003, when investors bet on cuts in borrowing costs that failed to materialize.
“The bank’s approach will be to keep an open mind,” Battellino told the Euromoney Australian and New Zealand Debt Capital Markets Forum in New York. “Markets do seem to have reached a pessimistic assessment” based mainly on an assumption that the U.S. and Europe’s economic problems will “flow through” to Australia, he said.
Australia’s unemployment rate in August rose for a second straight month, reaching a 10-month high of 5.3 percent. Battellino said the trends could be an indication that the economy has slowed to a pace “below its potential.”
“On the other hand, there are some aspects of labor market numbers that have a stronger feel,” he said. “Contrary to the slowing in the number of people employed, there has been solid growth in total hours worked recently.”
Savings Rate
Australia’s economy grew 1.2 percent last quarter, the fastest pace in four years, driven by recovery from natural disasters in the northeast of the nation and rising consumer spending. The report showed the household savings ratio declined to 10.5 percent in the three months through June from 11.7 percent in the first quarter.
Australian consumer confidence rebounded this month after falling to the lowest level in two years in August, driven by turmoil in the global financial markets. Battellino called the drop in consumer and business confidence “not surprising.”
“We will need to wait to see how these swings in confidence affect spending,” he said in his prepared remarks. “So far, recent liaison information from retailers does not point to any further significant weakening.”
Clouding Australia’s outlook is concern the world’s largest economy is slowing. Employment in the U.S. unexpectedly stagnated in August as employers became less confident in the strength of the recovery, according to a Sept. 2 report.
“It is too early at this stage to judge with any degree of certainty whether Australia will catch cold from the U.S.,” Battellino said. “However, given that over the past 10 to 15 years the Australian economy has been less vulnerable to severe U.S. symptoms, there are reasonable grounds for optimism.”
To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
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