Australia central bank hikes 2012 growth forecast

Australia’s central bank upped its annual growth forecast on Friday after a strong first half, but it warned that resources investment — a key driver of the economy — would peak by 2014. The Reserve Bank of Australia (RBA) said it now expected growth of 3.5 percent for 2012, instead of the 3.0 percent forecast in May, with the domestic economy powering on at above-average pace in the first six months of the year. Australia’s mining-driven economy expanded 1.3 percent in the three months to March — a result hailed as “remarkable” by the government given the cooling in China and Europe’s woes. Even if some of the March quarter growth is revised downwards when the next growth reading is released in September, the RBA said “the data currently suggest that growth in activity may have been above trend over the first half”. A solid rebound in household spending and continued strength in resource investment were seen as the main drivers. Looking ahead, the bank warned that the boom in mining and energy-related spending was expected to peak “sometime in 2013-14” and begin modestly subtracting from growth over 2014. “That peak is expected to occur somewhat earlier than previously thought,” the RBA said in its quarterly outlook on monetary policy. “Some resource companies have adopted a more cautious approach to investment opportunities currently under consideration... given the more uncertain global outlook.” The inflation outlook was little changed at 2.50 percent for the year to December, compared with 2.25 percent forecast in May, and the bank said it saw the current official interest rate of 3.50 percent as “appropriate”. On the global front, the RBA said China’s growth was expected to pick up slightly in the second half of the year “as recent easings in fiscal and monetary policies start to take effect”. But Europe continued to weigh heavily on the outlook as a “significant downside risk” and conditions were “expected to remain weak in the euro area for some time”. “As a result of the trade and confidence linkages from the below-trend growth in Europe and the United States, growth may be dampened in much of Asia,” the bank said. Though possible scenarios included “the exit of one or more economies from the euro area”, the RBA said its forecasts assumed ongoing volatility in sentiment and financial markets without a “severe disruption” to the region.