Australia's rate of economic growth is expected to ease slightly in 2013 as mining investment slows, the central bank says.
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The Reserve Bank of Australia on Friday downwardly revised its forecasts for gross domestic product (GDP) growth to between two to three per cent in 2013, from its previous forecast of 2.25 to 3.25 per cent.
It expects GDP growth through to the end of 2012 to be 3.5 per cent, which is in line with its November forecast.
December quarter GDP figures from the Australian Bureau of Statistics are released on March 6.
The RBA's quarterly Statement on Monetary Policy attributed the downturn to the mining investment boom peaking by the end of the year.
"Over the past six months, the largest downward revisions to the mining investment profile have been in the coal sector," the RBA said.
"Despite recent rises, prices for both coking and thermal coal remain more than 20 per cent lower than they were a year ago and most forecasters expect prices to remain relatively subdued over the medium term with global demand for coal dampened by the increase of natural gas production in the United States."
Commodity price rise
However the RBA said there was a sharp rise in coal and iron ore outputs in the December quarter, and commodity prices have also increased from their mid-year slump, helped by the stabilisation of the global economy in recent months.
"There have been further signs that the Chinese economy has stabilised, underpinned by public spending and accomodative financial policies," the bank said.
"This has provided some additional support for commodity prices and activity in east Asia, outside of Japan."
The central bank also says investment in dwellings also is beginning to recover after its steady decline in 2011-12 but consumer demand remains weak.
GDP forecast 2014
The RBA's forecast for GDP growth in 2014 is 2.25 per cent to 3.25 per cent, unchanged from the November Statement on Monetary Policy.
Consumer Price Index (CPI) inflation is now expected to be between two to three per cent in 2013, matching the RBA's target range for annual inflation. Inflation for 2012 was 2.2 per cent.
The central bank said that its four cash rate cuts in 2012 are starting to have the desired effect on the economy.
"The current inflation outlook would afford scope to ease policy further, should that be necessary to support demand," the RBA said.
The RBA also said employment growth has stayed subdued in recent months, with the unemployment rate drifting higher.
"Employment is then expected to pick up gradually, but to remain below the pace of population growth over most of the forecast horizon," the RBA said.
The unemployment rate for January was 5.4 per cent, the ABS said on Thursday.
The Reserve Bank also mentioned the issue of banks' funding costs.
The big four banks have previously said high funding costs were behind the reasons why they had refrained from passing on all of the Reserve Bank’s 0.25 percentage point rate cuts.
In its statement today, the RBA said banks’ outstanding funding costs were estimated to have been ‘‘broadly unchanged over the past few months’’.
The Reserve Bank added that ‘‘it will take some time for the reduction in spreads [for new bond issuance] to flow through to overall bank funding costs owing to the relatively subdued growth in credit and the slow run-off of wholesale debt issued previously at higher spreads’’.
Expectations that the cash rate would fall to a record low as early as March has seen interest rates for some types of fixed-rate mortgages drop to their lowest levels in more than 20 years.
The Australian Bankers' Association has been contacted for comment.
AAP, with Glenda Kwek