Asian Growth May Affect Australia's Medium Term Prospects: RBA's Lowe

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Growth in Asian economies is likely to have a profound effect on the medium term prospects of the Australian economy, the Reserve Bank of Australia's Assistant Governor Philip Lowe said Monday.

In a speech at the Citi Australia Inaugural Australian Investment Conference, Lowe noted that the there was a significant shift in economic weight away from developed countries to that of developing economies, especially in Asia, with the pace of growth picking up. "There is a considerable basis for optimism about growth prospects for Asia, particularly as the economies re-orient towards domestic demand."

"In the current global downturn, we have benefited from this re-orientation of our exports towards Asia," Lowe said. "While there is still much uncertainty about how the world economy will evolve over coming years, Australia finds itself in a better position than most of the other advanced economies."

The assistant governor pointed out that despite global trade falling over 20% in the past year, Australia's exports remained broadly unchanged. "The strong recovery in China saw demand for raw materials rebound strongly, and Australian producers were able to respond quickly," he added.

Lowe pointed out that Australia's terms of trade as well as investments options have also benefited from Asia's growth, particularly China's. Backed by increased demand in resources from Asian economies, investments, particularly in the iron ore and coal industries also showed up in rising export volumes.

The central banker said Australia's low cost of production of minerals and its proximity to major markets in Asia helped attract investments into the country to develop the country's resource base. He added that with increased demand for labor to reduce bottlenecks in the economy, immigration has increased, reflecting also in the increased population growth.

Meanwhile, Lowe pointed out that there was a need to maintain a flexible economy to facilitate the movement of labor and capital where it was required. At the same time, he said there was a need to manage risks from increased exposure to commodity price movements, and the relatively large fluctuations of the Asian economies.

"We need to keep the focus on removing impediments to capacity expansion so that the economy can grow without causing inflation. And we need to find ways of housing our rapidly growing population and dealing with the environmental issues that can come with growth", he added.

(Market News Provided by RTTNews)