THE RBA says Australia is in a "good position" to take part in a global recovery to start towards the end of this year.
Reserve Bank
governor Glenn Stevens also left the door open for further cuts in interest rates, saying changes in monetary policy still played a role in confidence.
"Do the changes still matter for confidence? I think they do to some extent and that is a factor to keep in mind for the month-to-month tactical decisions,” Mr Stevens told the Canadian Australian Chamber of Commerce in response to a question after his
speech
.
The RBA’s board left official rates unchanged at 3 per cent earlier this month. The central bank has cut rates by a total of 425 basis points as the
global financial crisis
deepened.
Mr Stevens, earlier in the speech, said both Australia and Canada had slipped into recession.
But the Mr Stevens said “there are good grounds to think that both countries should be in a relatively good position and well placed to take part in a renewed international expansion”.
"It is too soon to say this is beginning yet, though developments over recent months are certainly consistent with the view that a recovery will get under way towards the end of the year,” he said.
"That said, most observers think that the early part of any new global expansion will be characterised by pretty slow growth."
His remarks were consistent with central bank’s latest quarterly statement on monetary policy, which forecast year average growth in Australia of 0.5 per cent in fiscal 2010, accelerating to 2.25 per cent in the year after.
In response to questions, Mr Stevens said the Government’s long-term economic growth forecasts in the budget last week were “not crazily optimistic”.
The Government expects the economy to contract by 0.5 per cent in the next financial year, before posting another year of sub-trend growth of 2.25 per cent in fiscal 2010.
The recovery would then accelerate to a 4.5 per cent expansion in both 2011-12 and 2012-13 before easing to 4 per cent growth in each of the following four years.
“It is quite feasible to expect above average growth for a number of years at some point during an economic upswing,” Mr Stevens said.
“Exactly when that is and by how much no one really knows, but I don’t think it is crazily optimistic.”
But he also said that “any forecast that far out has a wide margin of error”.
He also said the green shoots of recovery seen in China were “real”.
“The durability is the open question and that is a question we don’t really know the answer to at this point,” he said.
“It has certainly been generated by domestic factors in China, not in a pick-up in China’s exports.”
He said sustained Chinese domestic demand would be good for the Australian economy.
Mr Stevens said it was possible the Australian economy could recover faster than expected if business confidence improved.
“I think that if we were to see faster growth than anticipated it would likely be because exceptional levels of pessimism in the business community gave way to something less pessimistic,” said Mr Stevens.
“If there was some factor that reduced that uncertainty (about the outlook) materially, then it’s plausible that we could see significant resumption of (business) expansion plans.”
