Australia’s consumers and companies are showing more caution than before the global financial crisis, even as a mining boom stokes the nation’s economy, a central bank official said.
“Our reading of recent data is that the Australian household and business sectors have, in aggregate, entered a phase of expansion,” Luci Ellis, head of financial stability at the Reserve Bank of Australia, said in prepared remarks in Brisbane today. “But they seem to be showing more financial caution than they did prior to the crisis.”
The central bank yesterday left its benchmark interest rate unchanged at 4.5 percent for a fifth straight month, contrary to predictions of most economists polled by Bloomberg News who expected a quarter-point increase. The RBA predicts growth will accelerate as demand from China for iron ore and energy spurs investment spending by companies such as Chevron Corp., which is building the A$43 billion ($41.8 billion) Gorgon liquefied natural gas project in Western Australia.
“The outlook for mining company profits is particularly strong, for obvious reasons,” Ellis told the CPA Congress 2010, a conference of company executives. “But even before this turnaround, many firms had been using their internal funds to strengthen their finances, often to replace debt funding that had become more expensive and less available.”
Evidence is mounting that Australian households, which account for more than half the economy, are spending less after policy makers embarked on the most aggressive round of interest rate increases by a Group of 20 member.
In the speech, Ellis said “a bit more” caution among borrowers is “probably a good thing, in that it might buttress their resilience to any future shocks that could come along.” The Australian economy has emerged from the global financial crisis in “reasonably good shape,” she said.
The RBA boosted its key rate to 4.5 percent in May, the sixth increase from a half-century low of 3 percent in October 2009.
Retail sales growth slowed in August to the weakest pace in six months, rising 0.3 percent, and imports fell the most since January 2009, the bureau of statistics said in reports published yesterday. Homebuilding approvals fell in August by the most in three months and credit growth stalled.
“The housing market has probably cooled somewhat,” Ellis said today. “Growth in dwelling prices has tapered off in recent months, especially in more expensive suburbs. Housing credit growth has slowed. New lending to first-home buyers reverted to closer to its historical share of loan approvals after the additional government grants expired.”
In its twice-yearly financial stability review published last week, the RBA said Australia’s banking system remains strong, having weathered only a very mild downturn compared with international experience over the past few years.
The nation’s banks are “well capitalized” and profitability has “started recovering,” Ellis said today.
Half-year net profit after tax and minority interests at the four largest Australian banks -- Commonwealth Bank of Australia, Australia & New Zealand Banking Group Ltd., Westpac Banking Corp., and National Australia Bank Ltd. -- jumped A$1.3 billion to A$9.9 billion from the comparable period a year earlier, RBA figures show.
Ellis also said the global financial system is showing “tentative improvement,” though markets remain concerned about Greece and Ireland.