Nation 'well placed' for global growth

Reserve Bank of Australia (RBA) governor Glenn Stevens says the nation is well
placed to benefit when the global economy begins to recover toward the end of this
year.
In a speech entitled "Australia and Canada - Comparing Notes on Recent Experiences",
Mr Stevens also warned that the recovery was likely to be slow at first.
"It is too soon to say this is beginning yet, though developments over recent months
are certainly consistent with the view that a recovery will get underway towards the
end of the year," he told an Canadian Australian Chamber of Commerce breakfast on
Tuesday.
"That said, most observers think that the early part of any new global expansion
will be characterised by pretty slow growth."
Mr Stevens said while Australia and Canada could not avoid the global recession,
both nations were better placed than others to profit from a resumption in growth.
"There are good grounds to think that both countries should be in a relatively good
position and well placed to take part in a renewed international expansion," he
said.
Commonwealth Bank chief economist Michael Blythe said Mr Stevens's remarks were
another example of a central banker hinting at an end to the global recession.
"While they are understandably cautious, the hint of optimism is there," Mr Blythe
said.
"From an Australian perspective, this view is still consistent with a recession and
slowing inflation."
The health of the banking sectors in Australia and Canada had supported both nations
during the global crisis, Mr Stevens said.
"Notwithstanding the global credit crisis, Canadian and Australian banks continue to
be profitable and are well capitalised by private investors - something that many
advanced countries cannot claim," he said.
Banks in both nations had performed better due to holding fewer complex securities
and taking a more conservative approach to lending in their domestic markets
compared to their counterparts in the United States and United Kingdom, Mr Stevens
said.
Mr Stevens also said that interest rates in Australia were at very low levels, and
that this was important to encourage business and consumer confidence.
The RBA's cash interest rate is currently at a 49 year low of three per cent after a
series of rate reductions since last September.
"Do the changes still matter for confidence? I think they do to some extent and that
is a factor to keep in might for the month to month tactical decisions," he said in
response to a question from the audience at the breakfast.
The RBA left the cash rate unchanged in May but economists believe a further
reduction is still in the pipeline.
Mr Blythe expects one more cut of 25 basis points in September, taking the cash rate
to 2.75 per cent.
"We do not expect to see any lift in rates by the RBA or others before the end of
2010," he said.
Mr Stevens said Australia's trade links to Asia, and in particular China, had
cushioned the nation's exports from the worst of the downturn in the global economy.
Despite a slump in commodity prices since the middle of 2008, Australia's terms of
trade over the coming year would still be around 40 per cent above the two-decade
average up to 2000, Mr Stevens said.
"Australian resource producers have accepted lower prices for the year ahead, and
this is likely to contribute to a decline in the terms of trade by the end of 2009
of about 25 per cent from the peak," he said.