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RBA Lowers GDP, Inflation Forecast

RBA Lowers GDP, Inflation Forecast

The Australian economy is expected to grow a little slower than trend this year, with the outlook for both mining and non-mining investment turning weaker than estimated earlier. Growth will, however, pick up momentum gradually in 2014, the Reserve Bank of Australia (RBA) said Friday.

The growth forecast for 2014 reflects expectation that the mining investment boom will reach its peak, and the expected effect of both fiscal consolidation and the persistently high level of the Australian dollar, the central bank said in its quarterly report.

Over the next few quarters, the pace of underlying inflation is expected to remain at an annual rate of around 2.5 percent, and would continue to be consistent with the inflation target. However, inflation could be higher than forecast if wage growth does not edge down as expected or if productivity growth is weaker than anticipated.

The current inflation outlook offers scope for further policy easing, should that be necessary to support demand, the report said.

The central bank also said that the cumulative reduction in interest rate last year has started giving results, but it will take more time for the full effects to become apparent.

Investments in the housing market and the non-mining sector are seen recovering modestly in the coming months. However, prospects for mining investment will depend on the sensitivity of investment plans to commodity prices.

Employment growth is forecast to remain modest over the course of this year, before rising gradually over 2014, the bank said.

by RTT Staff Writer

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