Australia May Be Affected by U.S. Economic Slowdown
A day after the International Monetary Fund (IMF) downgraded Australia's growth forecast over global recession concerns, a Reserve Bank of Australia (RBA) official acknowledged on Wednesday that the country could be affected by the U.S. economic slowdown.
"Markets do seem too have reached a pessimistic assessment and this appears to be based mainly on the assumption that weakness in the U.S. and Europe will flow through to Australia," RBA Deputy Governor Ric Battellino was quoted by Business Spectator.
However, he was optimistic that Australia would be able to weather the American economic slump, citing the case of China.
"China has maintained strong growth in the face of the U.S. recession and the sluggish recovery.... The latest batch of Chinese data, which related to August, suggests that any slowing in the economy has, to date, been modest," Mr Battellino told the Euromoney Australian and New Zealand Debt Capital Markets Forum in New York.
He stressed that China's growth has a strong positive impact on the Australian economy in the past 10 to 15 years.
"It is too early at this stage to judge with any degree of certainty whether Australia will catch cold from the U.S.... However, given that over the past 10 to 15 years the Australian economy has been less vulnerable to severe U.S. symptoms, there are reasonable grounds for optimism," Bloomberg quoted Mr Battellino.
The threat of a second round of global recession led the IMF to lower its growth forecast for Australia to 1.8 per cent from 3 per cent. The lower outlook led to speculations among economists and the money market that RBA would cut interest rates.
Mr Battellino said RBA's position is to keep an open mind if the Australian central bank would retain, cut or reduce the current 4.75 per cent cash rate. He compared the ongoing speculation to the situation in 2003 when investors bet that there would be cuts in benchmark rates, but the anticipated reduction did not happen.
The RBA official acknowledged the Australian economic has slowed down to a pace below its potential based on a second straight month of higher unemployment rate. However, on a quarterly basis, the country's economy expanded by 1.2 per cent and consumer confidence rebounded in August after dripping to its lowest levels in two years.
