In one of his regular appearances before the House Standing Committee on Economics, Reserve Bank Governor Glenn Stevens has forecast a peak in the resources boom, stable economic growth in the near future, and defended the bank over its handling of the Note Printing Australia and Securency corruption allegations.
On the economy, Stevens said “the economy appears to have been recording reasonable overall growth, relatively low unemployment, and low inflation”. He forecast a peak in the resource investment boom in “the next year or two”. He said: “After that the rate of resource investment is likely to decline, while the export shipments of the resources themselves will pick up. By then we might expect that some other sectors that have been weak of late, like residential and non-residential construction, might be starting to pick up. Overall, growth is forecast still to be close to trend, albeit with a different composition from that seen in the past year or two, and inflation consistent with the target.”
Opening statement by Reserve Bank Governor Glenn Stevens to the House of Representatives Standing Committe on Economics.
Since the meeting we had in February, assessments of the global and local economies have waxed and waned. In February, sentiment about the international financial system was recovering somewhat, after a scare late in 2011. The actions of the European Central Bank in extending its liquidity provision to euro area banks had taken major re-funding hurdles out of the picture for a time. This was a critically important action that bought time. It was clear that the European economy had slowed, that the United States was still growing, but at only a modest pace, and that China’s growth was moderating to something more sustainable. But high-frequency indicators of the global business cycle were stabilising. So even though forecasts for global growth were at that stage being marked down a bit, we did not seem to be seeing a slump of the kind seen in late 2008. Subsequently, there were actually some small upward revisions to global growth forecasts.
But, as we said at the last hearing, sorting out the problems in the euro area is likely to be a long, slow process, with occasional setbacks and periodic bouts of heightened anxiety. We saw one such bout of anxiety in the middle of this year, when financial markets displayed increasing nervousness about the finances of the Spanish banking system and the Spanish sovereign. The general increase in risk aversion saw yields on bonds issued by some European sovereigns spike higher, while those for Germany, the UK and the US declined to record lows. This ‘flight to safety’ also saw market yields on Australian government debt decline to the lowest levels since Federation. Meanwhile, many European economies saw a further contraction of economic activity. Share markets declined sharply.