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Summary
- RBA governor presented the outlook for the Australian economy, a few days after announcing the monetary policy decision for the month.
- Australian economy has shown faster recovery than anticipated, backed by reduced spread of the virus, strong policy action and diversification of businesses.
- Current challenges for the economy include attaining the targeted inflation rate as well as improving the employment rate.
On the 5th of February, RBA governor Phillip Lowe presented his updated outlook for the Australian economy in his opening statement to the House of Representatives Standing Committee on Economics. Governor Lowe pointed out that things have taken a positive turn for the Australian economy as various economic indices have outperformed expectations.
On the global front, countries have experienced a mixed wave of factors. Firstly, international trade has seen an uptick as consumer demand has increased over the previous few months. Secondly, the developments surrounding the vaccine have been the harbinger of increased consumer confidence. However, that comes with its own set of challenges, as the vaccine rollout could be a tough task to carry out.
This statement by Governor Lowe comes just three days after he announced the monetary policy for the month. Under the current policy, the RBA has decided to keep interest rates unchanged; however, the government’s quantitative easing program will be extended, much to the surprise of economists and financial experts.
ALSO READ: Why RBA kept interest rate unchanged
The Australian Outlook
The Australian economy started showing signs of recovery earlier than expected. The GDP has improved significantly, while the unemployment rate was much lower at 6.6% in December 2020, than its forecasted peak of 10% for the month.
Coupled with increased employment, retail sales and new house buildings have also been the benefactors of the overall economic growth of the country. The measures of consumer and business confidence have both improved.
The Australian recovery, according to Governor Lowe, was backed by three resounding factors in the country: the country’s capacity to contain the spread of the virus, strong fiscal and monetary support and finally the Australian resilience that let people power through the pandemic by innovating and improvising at every step.
RELATED READ: Market update: RBA’s bond buying spree sends ASX shares higher
The Remaining Challenges
The success story of Australia is not complete yet, as the economy has a lot left to achieve before pre-pandemic levels can be reached. The current unemployment rate is much higher than it has ever been in almost two decades. The hours of work have also been much lesser for many people, coupled with lower output level, which is 4% lesser than February 2020’s expectations.
Inflation is running below the RBA’s target of 2-3% and wage growth too, has been the lowest in decades. Keeping these factors in mind, the RBA has kept employment recovery and inflation target on high priority for future decisions.
Meanwhile, the housing market is also facing its own set of problems. In his speech, Governor Lowe pointed out that a lot had been going on in the housing sector, including low interest rates, shift in locational preference towards regional areas, increased incentives for first home buyers, slow population growth and reduced rental rates in Sydney and Melbourne.
