RBA cuts growth forecast

According to the latest quarterly statement, the Reserve Bank now expects GDP to grow by approximately 3 per cent over 2012 and 2013.

“Although three months ago a range of indicators were suggesting that economic growth was close to trend, the outcome for 2011 as now reported was, in fact, somewhat weaker than that,” the report read.

“Global growth is now expected to be around 3.5 per cent in 2012 and around 4 per cent (about trend) in 2013.”

The RBA said while the economy has been growing modestly in 2012, activity continues to vary significantly across industries.

The Reserve Bank gave particular mention to the mining sector, and it’s “exceptionally strong” outlook.

“The housing market and residential building activity remain weak. Demand for new housing finance has eased slightly in recent months, despite interest rate reductions late last year," the Reserve Bank report read.

“There are tentative signs that dwelling prices have declined more gradually than was the case in late 2011, but to date the market for established dwellings has remained subdued. At this stage, the available forward-looking indicators suggest that a recovery in housing construction is unlikely in the near term.

“But with mortgage servicing costs falling relative to incomes, rental yields rising and ongoing population growth, some important conditions for a recovery in construction are in place.“

Inflation had reached a low point of about 2.25 per cent last year and was forecast to increase to be close to the top of the inflation range by the end of 2011.

“Inflation did pick up a bit initially, but began to moderate in the second half of the year,” the RBA said.

Accordingly, CPI fell very sharply.

The report also mentioned the unusually low inflation results in the March quarter, with various measures indicating underlying inflation was around 0.25 per cent in the quarter.

“On a year-ended basis, underlying inflation declined to 2–2.25 per cent. The headline CPI fell by 0.2 per cent in the quarter on a seasonally adjusted basis, to be 1.6 per cent higher over the year.”

But while Australia's growth was not as strong as expected, treasurer Wayne Swan said Australia continues to be the envy of the developed world.

“We are in a completely different league to most other developed economies. We have contained inflation, solid growth around trend and record levels of mining investments.

“Other developed economies have unacceptable levels of unemployment. Australia stands tall in the world.”