Global recovery looming

Global recovery looming

Posted on Friday, May 04 2012 at 3:39 PM

The Reserve Bank of Australia (RBA) says global economic concerns are improving and fears of a second global financial crisis were unrealised in 2011.

In its quarterly Statement to
Monetary Policy
the RBA reports last year wasn’t as bad as many
doomsayers predicted.

“Most indicators
suggest that the slowdown was mild and it was certainly nowhere near as severe
as the downturn in 2008-2009,” the RBA report says.

“Global economic
growth slowed in late 2011, but that hasn’t developed into a major downturn and
a number of indicators suggest that, outside of Europe, conditions have
stabilised in recent months.”

However, the RBA
has kept the door open for further rate cuts, noting “although global economic
conditions overall have improved, the recovery remains fragile”.

“The global
economy is expected by most forecasters to grow at a below-trend pace in 2012…
Global growth is expected to pick up to around trend in 2013.

“Although the
near-term risk of a severe contraction in global activity from an
intensification of the sovereign debt problems in Europe has eased somewhat
over recent months, it remains the most obvious risk to the global growth
forecasts. Since February, the restructure of Greek government debt held by the
private sector and the second three-year longer-term refinancing operation by
the European Central Bank have helped to support global business and consumer
sentiment a little after some deterioration at the end of 2011.”

The outlook for
Australia is promising. Not surprisingly, the mining boom is continuing to help
Australia’s economy and despite flooding in parts of Queensland in 2011, the
RBA says demand for commodities from China and India is likely to continue.

“Over the year to
the September quarter 2011, export prices for iron ore and coal were supported
by growth in global steel production and supply disruptions in Australia and
elsewhere. This took the terms of trade to their highest level on record in the
September quarter, though subsequent falls in commodity prices saw the terms of
trade decline in the December quarter.”

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