The Reserve Bank of Australia is likely to engage in further monetary easing by year-end to support the faltering economy, after reducing the policy rate by 25 basis points at its latest meeting, Capital Economics Asia Economist Daniel Martin said Tuesday.
Martin observed that growth has been hit by the lackluster performance of the manufacturing sector amid falling external demand. The economy is likely to continue relying heavily on the mining sector for growth as external conditions may not be favorable to manufacturers over the next few years due to the deepening debt crisis in the euro area, the economist noted.
Capital Economics expects the Australian economy to grew 0.6 percent sequentially in the first quarter. However, the weakness in the country's manufacturing sector and falling consumer confidence, evidenced by the latest PMI and and other supporting data, point to struggles of Australia's manufacturers in the face of low external demand and a strong currency, which remains at historically-high levels.
Te central bank's estimates show that Australia's non-mining economy grew just 1 percent over the last year, while mining-related activity expanded by around 12 percent, forcing the economy to rely on the mining sector for growth, the firm said.
The central bank slashed its policy rate by a quarter percent to 3.5 percent at today's rate-setting session, after slashing it by 50 basis points last month.
by RTT Staff Writer
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