Reserve Bank governor Philip Lowe will have his economic optimism put to the test when he faces federal parliament’s powerful House of Representatives economics committee on Friday.
In a speech this week, Dr Lowe said he believes Australia’s fundamentals “remain very strong” and that the economy is “passing through a gentle turning point for the better”.
Surprisingly, he also predicts the impact of the devastating bushfires and the coronavirus will be short-lived – in contrast to Prime Minister Scott Morrison who expects the the virus alone will have a “significant impact”.
ANZ Bank is forecasting a contraction in the economy in the March quarter because of these events.
Westpac economists also expect the economy to stall in the first three months of the year because of the deadly virus and by the end of 2020 to be limping along at just 1.9 per cent, well shy of what the RBA is expecting.
The central bank is sticking to its forecasts made last November that economic growth will pick up to 2.75 per cent by the end of this year and accelerate further to three per cent by the end of 2021.
That would be a significant lift from the mere 1.7 per cent growth recorded in the year to September 2019 – the last official reading for the economy.
Dr Lowe expects a pick-up in world growth to help the Australian economy, along with a renewed expansion in mining investment and a rebound in consumer spending.
The Reserve Bank left the cash rate at a record low of 0.75 per cent at the first board meeting of the year this week, having reduced the rate three times last year.
Dr Lowe said it is possible interest rates could be cut again but hopes that doesn’t happen.
“The scenario on which we would be reducing interest rates is one where we are not making progress towards full employment and the inflation target,” he told the National Press Club this week.
Financial markets are predicting a cut in the cash rate to 0.50 per cent this year.