'Robust' economy depends on global outlook

RBA Governor Glenn Stevens charts an optimistic outlook for the Australian economy, but success will depend on global conditions

By Brad Gardner | September 20, 2010

The Reserve Bank of Australia is pointing to an optimistic outlook for the Australian economy, but it is warning success will depend on global conditions.

In a speech in Victoria today, RBA Governor Glenn Stevens told a business luncheon Australia’s terms of trade will remain high despite a small decline, adding that exports will increase spending and income levels.

Stevens expects "the largest minerals and energy boom since the late 19th century" to push economic growth above trend in 2011 even if households continue to remain cautious about spending.

"Of course that central forecast could turn out to be wrong. Something could turn up – internationally or at home – that produces some other outcome," Stevens says.

"But if downside possibilities do not materialise, the task ahead is likely to be one of managing a fairly robust upswing."

He points to continuing poor economic conditions in the United States, a slowdown in China or another financial downturn as examples which might affect credit markets and damage confidence.

During his speech, Stevens painted a positive picture of economic growth in the Asian region. He says most countries have recovered from the global financial crisis except for Japan.

"In the bulk of cases, economies are much closer to their potential output paths now than they were a year ago and policies are moving to less expansionary settings," he says.

The United States, however, is still a concern.

"In the United States an expansion has been under way for some time, but seems lately to have been losing a bit of steam and growth has recently not been robust enough to reduce high unemployment," he says.

Stevens also told the luncheon of the importance of engaging with businesses to understand "what is happening on the ground".

He says the RBA has, over the past decade, spent resources speaking to firms, industry and state and regional government entities about their concerns.

"The purpose of this is to help us understand what is happening ‘at the coal face’ – the conditions that businesses are actually experiencing and the things that concern them," Stevens says.

He says RBA officers stationed around the country talk to up 100 organisations each month.

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