Central Bank of Australia raises economic growth forecast | Money



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A worker is reflected in a wall of the headquarters of the Central Bank of Australia (RBA) in central Sydney on March 1, 2016. - Reuters pic
A worker is reflected in a wall of the headquarters of the Central Bank of Australia (RBA) in central Sydney on March 1, 2016. – Reuters pic

SYDNEY, Nov. 6 (Reuters) – Australia's central bank said on Wednesday the economy was "performing well" and raised its outlook for growth, keeping interest rates at a record low, but warned that there are worries about global trade.

The announcement comes as worries begin to surface over the country's housing market, which has already slowed in recent months.

The Reserve Bank of Australia said the G20 economy continues to grow and is expected to expand around 3.5 this year and next, a fraction higher than its previous forecast and continuing a record 26-year global growth.

Its main cash rate was kept unchanged at 1.50% to stimulate consumer and business spending.

But he said there were doubts about the "direction of international trade policy in the United States," with Donald Trump having embarked on a protectionist agenda leading to deadlock with key partners including China and the European Union.

Meanwhile, at home, consumers seem increasingly nervous, with Australians moderating their spending and confidence steadily dwindling this year.

And a drop in house prices may be good news for renters, but it can hit the wider economy with recent buyers burdened with assets that are worth less than they paid.

"It would not be a big concern yet, in the short term," Jason Yek of Fitch Solutions told AFP. "But I think housing prices are going to fall in coming quarters."

Home prices in Sydney and Melbourne have risen about 70 percent this decade, with wage growth lagging behind despite low unemployment rates.

Many Australians already find that the balance of household books is more difficult despite the expanding market and household debt remains at one of the highest levels in the entire OECD.

Some analysts predict that household finances will be tighter, as a flurry of interest-only home loans in 2015 will end with a five-year grace period.

By 2020, Yek said, many Australian real estate owners will have to start paying the principle as well.

According to the NAB Consumer Anxiety Index, the cost of living is still the biggest driver of Australian consumer anxiety. – AFP

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