Stay 
Trading Conditions
Products
Tools
The Australian economy is likely to grow solidly in the coming years driven by high demand for its resources from Asia, a top central bank official said on Friday. Ric Battellino said the economy will likely continue its growth but warned of risks to the downside. "Our expectation is that economic growth in Australia will continue for at least the next couple of years," he said at an event in Redcliffe, Queensland.
"This view is partly based on the expectation that the world economy will continue the expansion that began in 2009," he said. "Growth in our major trading partners, a group that is more heavily weighted to the fast-growing economies of Asia, is expected to be even stronger this year."
The central banker said Australia's export prices will likely ease back a little in the next two years, as supply rises and economic growth in the country's trading partners slows to more sustainable levels. "Nevertheless, by historical standards, prices will still be very high," he said.
Battellino said business investment in the mining sector will be the leading driver of economic growth in the future. He pointed out that mining investment in the country had already jumped to 4.25% of gross domestic product in the current boom, compared to a past peak of around 3% of GDP.
"Even on conservative assumptions, [mining investment] is expected to rise significantly in the years ahead," he said. "That will provide a major impetus to growth."
Investment outside mining will also be strong, Battellino said, given that capacity constraints exist in many parts of the economy. "This expansion in business investment is expected to outweigh the planned scaling back of government spending," he said.
The Reserve Bank of Australia official forecast inflation to remain around manageable levels for the next year or so, but then pick up in tune with a strongly growing economy. "History tells us that inflation can be problem during resource booms, and while there are grounds for thinking it will be less of a problem this time than in the past, we need to remain alert to the risks," he said.
However, Battellino said risks to the downside remained, and that policymakers will need to remain vigilant. "While Australia will, most likely, continue to do well over the next few years, it would be a mistake to assume that the economic cycle has been eliminated," he said.
"It is possible that growth in the world economy will lose momentum, creating a significantly less favorable environment for Australia than is currently assumed. Both the volume and price of our exports would be weaker and external financing might also be more difficult," he said. "On the other hand, it could also turn out that inflationary pressures build more quickly than assumed."
Resource-rich Australia has benefitted hugely from surging demand in China and other Asian economies for its commodities. Figures released earlier in the month showed that the country's monthly trade balance logged a record high surplus of A$3.5 billion in June, fueled by a large increase in exports of commodities such as coal and iron ore.
Earlier this month, the Reserve Bank of Australia decided to hold its cash rate steady at 4.50% offering businesses and households a reprieve for the third month running. The decision came after recent economic figures showed weakening household consumption and a cooling real estate market.
Copyright(c) 2010 News.com, Inc. All Rights Reserved
