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Central bank cuts Aust. outlook
SYDNEY, Australia (CNN) -- Australia's central bank governor Ian Macfarlane has slashed his 2003 growth forecast to 3 percent and warned that household debt levels are "excessive." His previous forecast, made in December, was 3.75 percent for this year. He also hinted the next interest rate move could be a cut, after the Reserve Bank of Australia left rates on hold earlier this week. Neighboring New Zealand cut its interest rate by a quarter of a percentage point on Thursday. In testimony to a parliamentary committee on Friday, Macfarlane said the weaker performance of the global economy was affecting Australia's outlook for the rest of 2003. While strong domestic demand was pushing up imports, Australia's exports had fallen "appreciably." Commodity exporters are being hit hard by exchange rate moves, with the Australian dollar at its highest levels against the U.S. dollar since July 1999. In midday trade Friday it is at 66.84 U.S. cents, just below its high of 67.03 earlier in the day. Macfarlane's comments add a note of caution to an economy that experts say has been outperforming other advanced economies, despite the impact of a drought on the agricultural sector. National accounts released on Wednesday by the government's statistics agency show the Australian economy grew 0.7 percent in the first quarter of the year, and 2.9 percent from a year earlier. The quarterly figure was slightly below market expectations of 0.8 percent. (Full story) Earlier this week, the Reserve Bank left interest rates on hold, as expected. They have now been stable at 4.75 percent for a year, with most commentators seeing little movement for the rest of the year. But Macfarlane's comments Friday morning raised speculation of a change ahead. He said that despite the relatively short war in Iraq and the associated drop in oil prices, the international environment had not improved as hoped. "The changing fortunes of the U.S. dollar throw an additional complication into the mix. "To date, the (Australian) domestic economy has weathered the unfavourable international environment very well. Nonetheless, growth will be further adversely affected in the period ahead if the international situation does not improve," he said. "If this were to occur, it would change the balance of forces that has been keeping interest rates steady over the past year." Macfarlane stressed he was not criticising the United States for the fall in the greenback, saying it had shouldered more than its fair share of responsibility for getting the global economy moving again. He said more countries needed to find domestic sources of expansion, and said there was a great deal of scepticism about how successful Japan and the euro zone would be in doing this. Macfarlane said it was now clear there had been no pick-up in global growth in the first half of 2003 and there were few signs to support a pick-up in the remainder of the year. On the Australian domestic front, he said the biggest risk was the rapid growth of household debt. "Not only does it seem excessive in terms of purely domestic needs, it is far higher than in any other comparable country," Macfarlane said.
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