The Reserve Bank of Australia reduced its 2013 growth forecast as lower investment in iron-ore, coal and natural-gas projects and the government’s pledge to deliver an election-year budget surplus restrain the economy.
“Most of this revision to the outlook is accounted for by a change in the profile for mining investment,” the RBA said today in its quarterly monetary policy statement, predicting a peak in resource spending at about 8 percent of gross domestic product from a prior 9 percent. The central bank said “a slightly weaker” domestic economy and labor market should help contain inflation.
Prime Minister Julia Gillard’s bid for a A$44 billion ($46 billion) budget swing back to the black “appears to be weighing on growth over the second half” of this year, the report showed. The central bank has cut the overnight cash rate target by 1.5 percentage points since Nov. 1, 2011, as it aims to help industries such as construction rebound as mining investment wanes.
“The RBA has a clear bias toward more rate cuts,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. “The most likely triggers are a deterioration or lack of improvement in the global and domestic economic environments.”
The report cited the local currency’s strength -- even as commodity prices dropped last quarter -- as a factor in decisions by mining companies to put off some projects.
The RBA predicted year-average GDP growth of 2.25 percent to 3.25 percent in 2013, lower than its August estimate of 2.75 percent to 3.25 percent. Consumer prices will rise 2 percent to 3 percent in the year to December 2013 and underlying inflation the same rate, little changed from three months ago, the central bank said.
“While the impact of monetary policy changes takes some time to work through the economy, there are signs that easier conditions have been having some of the expected effects, and further effects can be expected over time,” the central bank said. “Lower interest rates, rising rental yields and an improvement in conditions in the established housing market are expected to support rising dwelling investment.”
The Australian currency was little changed at $1.0418 at 2:16 p.m. in Sydney, rebounding after an initial drop following the statement’s release. It has closed above parity with the U.S. dollar for all but 23 days this year and has remained above the average of about 75 U.S. cents since it was freely floated in December 1983.
The RBA based its forecasts on the currency at $1.04, down from $1.06 in its August statement, and assumed the overnight cash-rate target would remain at a developed-world high of 3.25 percent. It noted the market expects a further 50 basis points of reductions in the cash rate by mid-2013.
On jobs, the RBA said: “The current forecasts anticipate only modest employment growth in the near term given the softer outlook for demand growth, the high exchange rate and the resulting pressure on firms to boost competitiveness.”
Australia’s unemployment rate rose to a 2 1/2-year high of 5.4 percent in September and held at that level in October. The economy added full-time jobs for a fourth straight month, the longest streak of gains since 2010, advancing by 18,700 in October, employment data released yesterday showed.
The central bank lowered borrowing costs in five steps in the past year as Europe’s fiscal crisis threatened global growth. It kept rates unchanged at the meeting earlier this week, reflecting a stabilization of growth in China, Australia’s biggest trading partner, and an improving outlook in the U.S., where unemployment has been less than 8 percent for the past two months.
“In the U.S., growth is continuing at a moderate pace and there are now signs that growth may have stabilized in China, helped by a pickup in infrastructure investment,” the RBA said.
Australia’s economy has benefited from high terms of trade, or export prices relative to import prices, that rose to a record in the third quarter of last year. Today’s report showed the terms of trade are forecast to have declined 15 percent by the end of this year, “a little more than had earlier been expected,” the central bank said.
The RBA said inflation in the prices of internationally traded goods, or tradable items, is forecast to remain flat as the exchange rate remained stable. It said a combination of the government’s carbon price and earlier volatility in fruit and vegetable prices is expected to push headline inflation above 3 percent in the first half of 2013, before slowing again.
Traders are pricing in a 61 percent chance RBA Governor Glenn Stevens will reduce rates by a quarter point to 3 percent at the next meeting in December, little changed from before the statement, swaps data compiled by Bloomberg showed.
Stevens is managing an economy powered by demand from emerging nations including China and India for iron ore, coal and natural gas. Chevron Corp. (CVX), Royal Dutch Shell Plc (RDSA) and ConocoPhillips (COP) are among energy companies spending $180 billion to explore and develop gas fields in Australia.
In its report today, the RBA said its lower resource- investment forecast is partly attributed to companies reassessing their spending plans.
Mitsubishi Corp. (8058), the biggest Japanese trading house, said this week that declining iron ore prices and uncertainty over finding a partner would further delay its Oakajee port, rail and iron-ore project in Western Australia.
“It’s a tough situation,” Mitsubishi Chief Executive Officer Ken Kobayashi told a meeting of analysts and investors in Tokyo on Nov. 7. “In the long run, you have to look at it from the supply and demand angle.”
The total cost of the project is now more than 1 trillion yen ($12.6 billion), Kobayashi said. The port cost was earlier estimated at A$5.9 billion.
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