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The Australian economy is well down the path to recovery with robust growth forecast over the coming years
The latest IMF World Economic Outlook released in February predicts that Australia will grow by 2½ per cent in 2010 and 3 per cent in 2011 – with global economic growth of 3.9 per cent forecast this year.
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The IMF’s outlook for growth in the domestic market is reflected in the latest unemployment figures.
The jobless rate peaked at 5.8 per cent in June 2009, but dropped to 5.3 per cent this January highlighting improving business conditions. A cornerstone of the recovery has been in the resources sector and this is tipped to drive further growth in the near future.
A surge in mining activity, spurred by increased overseas demand, has raised fears of rising inflation but the RBA remains confident that Australia’s economy should absorb inflationary pressures driven by a resources boom.
“In the 30 years since the previous boom, the Australian economy has developed in ways that should make it better able to accommodate the surge in mining activity that is currently under way,” Reserve Bank of Australia Deputy Governor Ric Battellino said.
A rapidly improving economic outlook is likely to increase the focus on interest rates as the specter of inflation returns.
NAB’s chief economist Alan Oster has outlined RBA rate hikes for May, June and August though there will doubtless be fears that rate hikes could hit sooner.
Predictions of surging housing prices will be of concern to the RBA and this may force the Bank to move sooner rather than later if rising consumer debt levels become problematic.
None the less the cash rate standing at 3.75 per cent before the March RBA meeting remains well below historical averages and still represents an attractive prospect to most borrower segments.
Brokers however should encourage prospective borrowers to factor in at least a two per cent buffer into their serviceability calculations because there is a more than reasonable chance that this may come to bear should the economy gather greater momentum.
