Australia's economy is expected to weather global economic crisis more than its international counterparts as it has a better financial system compared to other economies, Reserve Bank of Australia's Assistant Governor of Economics, Malcolm Edey said Wednesday. But, he agreed that Australia will be operating in a difficult international environment this year.
"There are reasons to expect that the Australian economy can continue to perform better than its international counterparts in the difficult period that lies ahead," Edey said in a speech in Sydney.
Edey noted that Australia had more momentum than most comparable economies in the period leading into the crisis. He said the economy's financial system remains in a much better shape than its international counterparts and it helped gain much more traction from cuts in official interest rates.
He said the central bank's rate cuts have been passed through to end borrowers, especially for housing loans, since it started lowering rates in September. He noted that this was in marked contrast to other countries, where banks were hit hard by financial crisis and the degree of pass-through was limited.
Since September 2008, the RBA had cut its key cash rate by a total of 4 percentage points to a record low of 3.25%. In addition, Malcolm Edey said the depreciation of the exchange rate is also insulating the domestic economy.
Further, Edey said while major industrial countries were slowing due to crisis, China and the other developing economies in Asia and elsewhere were growing at a good pace until the September quarter. But, he said 2009 is shaping up as a very difficult year for the world economy.
Growth in virtually all of Australia's trading partners will be well below trend this year. "This would also mean that the current cycle is more highly synchronized than the three previous international recessions, in the early 80s, the early 90s and in 2001," Edey said.
Official forecasts, including those of the IMF, imply that output in the major industrial economies will contract further in the first half of this year, but start to pick up later in the year and into 2010. "The situation is still very uncertain but, for the reasons I've been outlining, that seems like a reasonable expectation."
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