Growth stronger in 2012, but Europe still a risk

Growth stronger in 2012, but Europe still a risk

Fri August 10, 2012 5:09pm

THE forecast pace of growth in the Australian economy for 2012 is better than previously expected, but problems in the euro zone threaten to crash the party, the Reserve Bank of Australia says.

In its Statement of Monetary Policy released today, the RBA said stronger data readings in the first half of the year had prompted it to revise gross domestic product (GDP) forecasts for 2012 as a whole.

"The firm pace in the first half of the year sees the forecast for GDP growth over 2012 rise to three and a half per cent (from three per cent in the May statement)," it said.

"The economy is then expected to grow at around three per cent over 2013 and 2014, little changed from the May statement."

Data released since the last statement had suggested a better economic performance in early 2012, driven by increased resource investment and confident household spending.

Price markdowns from retailers earlier in the year, plus recent government payments had encouraged people to spend more, the RBA said.

However, healthy growth in Australia could still be derailed by risks from the euro zone, according to to the central bank.

"The economic and financial events in the euro area remain a significant downside risk to global economic growth," it said.

"The sequence of policy responses to date, while often improving sentiment temporarily, has not been able to fix the underlying problems and so concerns have periodically intensified, and are likely to continue to do so."

The RBA warned that the exit of one or more nations from the euro zone was a real possibility, and there were several scenarios which could see growth in the region plunge.

"Other risks to the global economy are slightly tilted to the downside, though much less so than is the case for Europe," it said.

While Chinese growth - crucial to Australia - appeared to be stabilising - it was also uncertain whether growth would be faster or slower there, the RBA said.





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