Australia’s central bank on Friday raised the growth forecast for next year and predicted that the expected increase in core inflation would be quite gradual, mainly due to low wage growth.
The latest Monetary Policy Statement of the Reserve Bank of Australia showed that the bank now expects the economy to grow 2.75-3.75 percent in 2018 versus 2.50-3.50 forecast in February.
“The period of adjustment that has followed the end of the mining investment boom now appears to be well advanced,” the bank said in the statement.
“Consistent with this, further signs are emerging that the slowdowns in the Queensland and Western Australian economies are coming to an end,” the RBA added.
The central bank expects GDP to grow 2.5-3.5 percent by December this year and 2.75-3.75 percent by June 2019.
The bank asserted that a shock contraction in the middle of last year was only temporary.
Inflation is expected rise gradually with the core figure seen at 1.75 percent around June this year and between 1.5-2.5 percent around the same month next year. Underlying inflation was projected to be between 2 and 3 percent, which is the RBA’s inflation target, by June 2019.
The RBA left the unemployment rate forecasts unchanged and the figure is seen between 5 and 6 percent from December this year to June 2019.
“The forecast for the unemployment rate implies ongoing spare capacity in the labor market; this is likely to constrain wage outcomes in the period ahead,” the bank said.
While the bank expects consumption growth to broadly track income growth in the months ahead, it cautioned that the gain would be very weak, given the low wage growth.
“This makes it hard to be certain about the future pace of consumption growth, particularly in the context of ongoing high levels of household debt,” the bank said.
The RBA also said that it was difficult to ascertain if and when a stronger and durable recovery in non-mining business
investment might take hold.
Though the level of residential investment is…