31013
Australia Cuts ‘Speed Limit’
World Economy

Australia Cuts ‘Speed Limit’

Australia’s Treasury lowered its estimate of the economy’s potential growth rate, or speed limit, reflecting weaker population growth and fewer hours worked in an economy adjusting to the end of a commodity-price boom.
The economy’s potential rate will be about 2.75% over the next few years, down from 3% estimated at the time of the budget, Nigel Ray, deputy secretary of treasury and responsible for its macroeconomic group, said in a speech in Sydney Tuesday. The rate is projected to fall further, reaching 2.5% by 2050, as the population ages, he said, Bloomberg reported.
“It is likely that, on average, we won’t have to grow quite so fast” to close the output gap as previously thought, Ray told a forum of economists. “The economy will of course, by definition, still have to grow a bit faster than potential.”
Australia’s population growth has eased as a weakening economy has diminished the country’s appeal to migrants. The central bank has cut interest rates to a record-low 2% to help cope with the unwinding of a decade-long mining boom and support consumption as wage growth slows.
The International Monetary Fund warned in June that the Australian economy’s speed-limit–or the growth rate at which inflation starts to accelerate–could drop from above 3% to 2.5%. The Reserve Bank of Australia and treasury have also indicated in recent months that the potential growth rate was likely lower.

 Soft-Landing
Growth in Australia’s working-age population slowed to 1.5% over the year to June 2015, lower than the budget’s assumption of 1.75%, and is “well below its average yearly growth over the past 10 years,” Ray said.
Treasury will finalize its mid-year economic and budget forecasts following the release of third-quarter gross domestic product next week, Ray said.
Australia is the fourth largest commodity seller as a percentage of GDP. Over 15% of the nation’s GDP comes from exports. Only Russia, Venezuela and Chile are ahead. In the case of the first two, oil makes up a large portion of exports. For non-oil commodities, only Chile exports more than Australia as a percentage of GDP.
China’s slowdown has an impact on Australia.
One story developing now is that China’s slowdown will be gradual. In other words, policymakers will attempt to manage the decline in order to prevent the Aussie economy from crashing. This is the so-called ‘soft landing’. A soft landing equates to GDP growth of 6.5% up to 2020.
Truth is, a soft landing is by no means guaranteed. As hard as China bulls try to convince you otherwise, even a soft landing is a big deal. A soft landing poses bigger problems for Australia than China itself.

Short URL : http://goo.gl/0rXjbO
  1. http://goo.gl/3hpHeg
  • http://goo.gl/wJ5P1v
  • http://goo.gl/vS1v5C
  • http://goo.gl/0LQMgV
  • http://goo.gl/Kt9N5r

You can also read ...

Capital Economics forecasts Turkey’s GDP growth will fall to 3.5% in 2018 from 7.4% in 2017.
Expectations for Turkey's end-2018 inflation rate rose from 12...
Trump Tactics Sabotaging US Economy, Markets
Wall Street could be making a costly mistake. According to...
File photo of finance ministers and central bankers from the G20 nations.
Global economic growth is poised to pick up this year, though...
Apple Watch Smells Losses
The latest round of US tariffs on $200 billion of Chinese...
Italian Bonds, Stocks Fall
Italian bond yields rose and equities sold off on Friday after...
Technology Can Help Workers From the Informality Trap
Technology and what it will do to change how people work is...
Moody’s Warns Philippines of Downside Risk
Debt watcher Moody’s Investors Service on Friday said the...
A weaker yuan remains a source of risk for global currency markets.
The Chinese yuan slid to its lowest in more than a year on...

Trending

Googleplus