RBA's Stevens: Mining Boom Will Not Ease Down Difficulties Ahead
More good news will be generated by the resources industry but these could be drowned out by continuing pressures seen outside of Australia and the country's strong dollar is not helping the domestic situation at all, these according to Reserve Bank of Australia (RBA) governor Glenn Stevens.
A day after the RBA froze the country's cash rate at 4.75 percent, Stevens said on Wednesday that Australians can take comfort on the fact that the mining boom will certainly provide the buffer against the negative impacts of runaway local currency levels and the unsettling situations both in the United States and a number of European countries.
However, the RBA chief also clarified that difficult periods are still ahead as he revealed that much of the challenges will affect the ordinary Australians and the business environment in general, with the trade-exposed sector, Steven stressed, as especially vulnerable.
Speaking at the breakfast meeting jointly hosted by the Chamber of Commerce and Industry WA and Chamber of Minerals and Energy WA in Perth, Stevens said that despite the gloomy outlook for many sectors, miners would continue to enjoy influx of more investments.
"More large scale projects have been approved and the pipeline of future investment looks very large," the RBA boss said as he projected that the sector should register at least two percentage gains on its GDP over the next few years.
These upward movements are amply supported by the steady price levels of commodities plus of Australia's rising terms of trade, which so far has achieved unparalleled heights in the present quarter.
Yet the cautious mood that rules both the business and household environment could spell the difference on Australia's overall economic condition, Stevens said, which he added could hasten required structural adjustments with a little more prodding by the higher dollar.
"It has become clearer that precautionary behaviour by households and some firms is exerting restraint on the pace of growth in demand, and that the higher exchange rate is diverting more demand abroad," the RBA chief told his audience.
Bearing the brunt of such condition, Stevens said, are the trade-exposed sectors and their problems could persist for a little more time as the high level of the Australian dollar could be sustained a bit further.
Coupled with a struggling global economy, which is highlighted by the debt and financial issues being dealt by economies in America and Europe, Stevens predicted that lower commodity prices may be in the offing, with threats of rising inflation not too far away.
He also acknowledged that local productivity is indeed becoming a paramount issue, which he admitted had caused growth to falter and underlying inflation to jump, though he quickly added that their pace are manageable at this time.
Despite the alarm raised by the manufacturing sector, Stevens ruled out more working hours for Australian workers as he stressed that "productivity per hour, which is what counts, is not improved by adding more hours, but by finding ways of making the hours that are already being contributed more effective."
Besides, the RBA chief reminded the mining companies that "Australians already work pretty long hours by international standards."
While the overall outlook is not ideal, not only for Australia but also for the global economy, Stevens believe that the country is generally stable in all economic respects, with its present condition supported by low unemployment, a stable financial system and respectable sovereign debt.