20000223

Australia's RBA faces up to slowing economy

SYDNEY: The Reserve Bank of Australia conceded on Tuesday domestic demand has come off the boil, but emphasised that economic growth will still be solid in 2000.

A string of soft economic data over the past month had been all but ignored by the central bank which even last week was sounding hawkish, but RBA assistant governor Glenn Stevens acknowledged that the pace of growth has eased.

For the year ahead he said some moderation in domestic demand was likely, so that overall the economy would not accelerate from its recent 4.5 percent pace.

Offsetting the softer local activity will be higher exports as world growth picks up.

"The tone of what Stevens said was definitely less upbeat than last week's quarterly (RBA) report, and it's an implicit acknowledgement of the softer numbers we've seen in the past few weeks," said RBC Dominion Securities senior economist Su-Lin Ong.

She said the bond market drew comfort from those comments, which were interpreted as suggesting the RBA will hike only modestly from here on in.

Employment, housing finance and consumer sentiment have all fallen suddenly in recent weeks, and there have been signs that job advertisements, retail sales and business conditions are softer too.

SMALLER TIGHTENINGS

"As far as the data in recent weeks go, some of them have been a bit softer but the second half of last year and the closing months in particular were exceptionally strong," Stevens told a business conference. RBA Governor Ian Macfarlane noted the volatility of some December and January data nearly two weeks ago, but put this down to effects of the millennium bug.

The Reserve Bank raised interest rates by 50 basis points earlier this month to 5.50 percent, helping take the steam off growth before any sizeable imbalances emerge. Most analysts expect another 25 or 50 points of tightening by mid-year, when the 10 percent goods and services tax begins.

"The softer numbers for consumption is what the RBA is really looking for, and if that does persist it suggests there won't have to be many additional tightenings," said Macquarie Bank economist Brian Redican.

"I don't think the RBA is getting unduly concerned with the soft data we have seen but they had to acknowledge it. In fact some softening in domestic demand would provide some breathing room for the increase in external demand," he said.

Key to the economic outlook will be business investment figures on Thursday, which will give the first reading of planned spending for the 2000/01 year.

On Tuesday, company profits figures released by the Bureau of Statistics showed a 3.1 percent rise in the December quarter, helped by a return to more normal levels of profitability for the mining sector.

The IMF forecast calendar 2000 economic growth of 3.6 percent for Australia, down from 4.3 percent in 1999, while the Australian government has esimated gross domestic product growth in the 1999/00 year to end-June of 3.5 percent, rising to 3.75 percent in 2000/01. GDP in the year to end-September 1999 was 4.5 percent. -Reuters