Australia's central bank warned of continued global volatility and slowing Asian growth Friday, saying recent market turbulence related to Europe's debt fears had muddied the outlook.
The Reserve Bank of Australia (RBA) said bullish demand for coal and iron ore, the country's two largest exports, had returned the nation's terms of trade to historic heights, leaving it in a solid position of growth.
Globally however, the bank warned that "uncertainty about the outlook remains elevated", with high volatility persisting on world markets and the recovery patchy from the downturn.
"There is a possibility of a renewal of concerns about the financial position of European banks and governments, although the likelihood of this appears to have fallen somewhat over the past month or so," the RBA said in its quarterly statement on monetary policy.
It noted that galloping Asian growth, including double-digit performances in China and India, appeared to be easing to a more "sustainable" pace, a welcome development for inflationary pressures.
"There is some risk that the recent policy measures by the Chinese authorities (could) result in a larger than intended slowing in growth," it added.
"A material slowdown in steel-making and the construction sector could lead to a significant fall in commodity prices and potentially a delay in investment by resources companies in Australia."
But the bank said the upside and downside risks appeared "evenly balanced" and Australia was likely to continue performing strongly on the basis of continued demand from Asia for its resources.
"The positive outlook for investment is underpinned by Australia?s high terms of trade and the expected strong growth in Asia?s demand for energy and resources over coming years," it said.
"Reflecting this, investment in the mining sector, which is already at high levels, is expected to increase further, particularly in the LNG (liquefied natural gas) and iron ore sectors."
Australia emerged from the global slump as the only advanced economy not to have entered recession, due in large part to resilient demand for its resources from China and other Asian markets.
The bank said the growth also owed to a "strong contribution from public investment", with the government pumping some 50 billion US dollars in stimulus into the economy, including massive school and home insulation projects.
Copyright 2010 AFP Asian Edition
