MNI INSIGHT: RBA May Downgrade Growth Outlook On Virus Impact

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of Australia may downgrade growth forecasts

further as it gains a greater understanding of the impact of the coronavirus

epidemic on the global and domestic economies, MNI understands.

     It isn't clear how the increased downside risks will impact the RBA's own

policy decisions in coming months, but the central bank doesn't expect a fresh

round of monetary easing from central banks in other developed economies,

although it believes some in the Asia-Pacific region may ease further.

     The RBA expected the outbreak to last for a shorter duration and basing its

initial assessments on the impact from SARS in 2002, but the latest event has

been more serious and is now expected to have a deeper affect on trade and

supply chains.

     Initial assessments were that it would mainly be the tourism and education

sectors hit hardest, but with many Australian companies that have supply chain

links with China running down their inventories the crisis is now expected to

leave a deeper footprint.

     The RBA has hoped the recent house price recovery -- driven by lower rates

and regulatory easing -- to kickstart sales of household goods as people prepare

properties for sale or move house. However, many goods in this sector, including

furniture and white goods, are sourced from factories in China.

     --GROWTH FORECASTS

     The RBA growth forecasts had already seen modest downgrades from November,

largely because of the expected hit from the bushfires that ravaged parts of the

country, but are still ahead of the current 1.7% over the longer term. The bank

is currently forecasting annualized growth of 1.9% in June, down from the 2.6%

forecast in November., with year-end forecasts now at 2.7%, trimmed modestly

from the 2.8% in the previous forecast.

     The RBA is sanguine over the January employment report that showed

Australia's unemployment rate increase from 5.1% to 5.3%, seeing the outcome

largely as an unwind of seasonal hiring. Although anticipating the labour market

to remain soft the first part the year, the most recent RBA forecast sees the

jobless rate at 5.1% by year-end.

     The RBA left policy on hold at its Feb. 4 meeting as it balanced the risks

and rewards of maintaining rates at a record low 0.75%, but the decision was

taken before the growing threat from the outbreak was fully known. It next meets

on Mar. 3.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

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