Australia entering new growth phase: RBA

Australia's economy had entered a new growth phase which would last years, underpinned by booming mining investment, rapid population growth and rising household incomes, a top Australian central banker said.

In a resoundingly upbeat speech, Reserve Bank of Australia (RBA) Deputy Governor Ric Battellino also highlighted the strength of Australia's major Asian trading partners, predicting economic growth there was likely to recover to trend next year.

Battellino noted the domestic economy had held up much better than expected this year, being the only developed economy to boast year-ended growth.

"With the economy having only recently entered a new upswing, it is reasonable to assume that we will see this growth extended for a few more years yet," said Battellino, in a speech to a housing industry conference.

That optimism was one reason the RBA raised interest rates in October and November, the first G20 central bank to do so since the global credit crisis blew up.

It will also encourage speculation the RBA will again lift its 3.5 percent cash rate at its December policy meeting next week.

Battellino said recent evidence suggested global growth as a whole had continued in the fourth quarter, led by a pick up in Asia. That was positive for Australia, since Asian countries were its major export markets.

"While the world economy as a whole is forecast to remain relatively sluggish next year, economic growth for the group of countries that comprise our major trading partners is expected to recover to a relatively normal pace," he said.

Battellino played down concerns that weakness in the North Atlantic economies would prevent a recovery in Asia, noting that much of the expansion in the region was fuelled by domestic demand rather than exports.

For China, domestic demand had contributed on average close to 9 percentage points per annum to growth over the past decade, while net exports contributed about 1 percentage point.

"Importantly, the authorities in most of these countries have plenty of scope to pursue policies that sustain domestic demand," he added.

Rising demand in Asia was also fuelling a boom in resource investment in Australia, notably in mining and liquified natural gas. "If this scenario eventuates, it will have powerful and broad-ranging implications for the economy," he added.

For one thing, demand for labour would likely keep immigration strong and thus support rapid population growth, he said. Household incomes were likely to rise solidly, which would help underpin the demand for housing.

The construction industry would likely face substantial competition for workers from the mining sector. Indeed, the need to build enough homes to meet rising the population would stretch the housing industry.

Battellino said Australian home prices relative to incomes did seem high compared to, say, the United States. Yet he also saw good reasons for this, including the fact that Australian households spent less of their incomes on non-housing consumption than Americans and tended to pay debt off quicker.

"The experience of the last few years suggests that the Australian household sector as a whole appears to have the financial capacity to sustain a relatively high ratio of housing prices to income," he said.

Battellino also played down worries the global credit squeeze would limit the supply of mortgage credit in Australia, saying lending by banks was relatively high and more than enough to fund needed housing investment.

- Reuters