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China's Domestic Stimulus Underpins Australian Economy, Says RBA's Debelle

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Reserve Bank of Australia's Deputy Governor Guy Debelle said domestic stimulus in China has provided short-term support to the Australian economy.

The stimulus to help the Chinese economy boosted demand for Australia's commodities and raised the national income, the banker said Thursday.

"The domestic stimulus in China to offset the trade dispute has contributed to a short-term boost to the Australian economy and significantly mitigated the impact of the trade disputes on us," Debelle said.

Trade disputes pose threat to the rules-based trade that prevailed over years. "Trade is being used as the bargaining tool of choice, including for issues that don't have much to do with trade," he noted.

So far, the Australian economy has been largely shielded from the effect of the trade disputes but further significant slowdown in China could clearly pose a risk, he added.

Further, the banker observed that investment in manufacturing around the world is weak.

"The decision to build or not build that new factory needs to be taken. The longer businesses hold off, the weaker demand will be, which will further confirm the decision to wait."

"That runs the risk of a self-fulfilling downturn," said Debelle.

On the domestic side, the main risk is the outlook for household consumption. "We do not expect much of an increase in wages growth although employment growth is expected to be reasonable," he said.

There are some near-term downside risks to the consumption outlook. But the risks to the outlook are more evenly balanced, he said.

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