Finance Work Economy holding up better than expected: RBA

Economy holding up better than expected: RBA

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The Australian economy is weathering the end of the mining boom, and the consequent terms-of-trade slump better than expected, according to the RBA.

The Reserve Bank’s head of economic analysis, Alexandra Heath, told a conference in Canberra on Friday: “While current growth in the Australian economy is not as strong as we would like, the evidence from previous terms of trade cycles suggests that we have actually done quite well in aggregate.”

Ms Heath said that unemployment, although higher, was not as high as would be expected “based on the experience of earlier episodes of significant structural change”.

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The most recent unemployment rate, at 5.9 per cent in seasonally adjusted terms, is likely to correct upwards at the next reading given that the trend-terms estimate remained at 6.1 per cent from September to October.

Both figures are better than forecast in the last budget, which saw 6.5 per cent unemployment in 2015/16.

“Some of the explanation appears to be that the labour market has been more flexible and relative wage developments have facilitated the adjustment of labour between sectors,” Ms Heath said.

Inflation was also lower than expected, she said.

“Unlike in previous episodes, we did not experience significant inflation, partly because the exchange rate appreciation helped to buffer the economy, but also because inflation expectations remained anchored throughout the episode,” Ms Heath said.

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