Australia’s central bank sees a good chance that global growth continues on its current path.The global economy in Australia is looking better than it did a year ago, according to Luci Ellis, Reserve Bank of Australia’s (RBA) assistant governor for economics.
Rising political tensions, especially in Asia, and record levels of household debt at home pose risks to the central bank’s outlook. The RBA has long warned that too many home owners are over-burdened with debt, though Ellis said this is probably best regarded as a potential exacerbating factor.“If some other shock should come along, debt would make it worse,” she said. While global wage growth and inflation should pick up as the forces of supply and demand assert themselves, that “could take a while," Ellis said. If price pressures remain subdued despite reasonable growth, then policymakers face a challenge. "In that scenario, policy needs to remain appropriately expansionary while avoiding further build-up of leverage and financial risk," Ellis added.
Ellis suggested there was potential for productivity growth to pick up once spare capacity in the world’s leading economies has been fully absorbed.Australia’s central bank expects to see solid employment growth ahead as the economy gradually picks up, while noting risks from housing debt outpacing household income. Interest rates were left unchanged, the Reserve Bank of Australia gave no signal policy was set to change any time soon.
Policy makers are also enjoying a boost from government infrastructure spending as residential housing appears to have peaked. But they’d be somewhat perplexed by markets bringing forward the chance of a rate move to about 60 percent in June 2018, driven by a generally stronger developed world outlook.