Treasurer jumps on RBA's positive outlook

Josh Frydenberg drew on comments by the RBA chief to promote the government's economic management.
Josh Frydenberg drew on comments by the RBA chief to promote the government's economic management.

Treasurer Josh Frydenberg has drawn on comments by the head of the Reserve Bank to promote the government's handling of the Australian economy, as one major bank predicted economic growth going backwards this quarter.

At a time when the near-term economic outlook has been clouded by the devastating bushfires and the country's response to the coronavirus, the central bank's governor Philip Lowe in a speech said Australia's economic fundamentals "remain very strong".

"They provide a solid foundation for us to be optimistic about our future," Dr Lowe told the National Press Club in Sydney on Wednesday.

Mr Frydenberg repeated Dr Lowe's comments during the first parliamentary question time of the year.

"There's only one group of people who are talking down the Australian economy, and it's those opposite," the treasurer said, pointing to the Labor benches.

"We have a strong economy."

However, economists at ANZ expect March quarter economic growth will contract by 0.1 per cent as a result of the coronavirus shaving 0.5 percentage points off GDP, along with small hit from the impact of bushfires.

ANZ economists Felicity Emmett and David Plank said in a note to clients while the impact of the coronavirus does not drive the case for a further cut in interest rates, "it adds to the weak tone of the economy and suggests further rates cuts are likely this year".

The central bank left the cash rate at a record low of 0.75 per cent at Tuesday's board meeting.

Dr Lowe reiterated that he is expecting the economy to be growing at 2.75 per cent by the end of this calendar year and three per cent at the end of 2021, driven by a pick-up in mining investment and a rebound in consumer spending from lower interest rates and recent tax cuts.

Growth was just 1.7 per cent in the September quarter, the last official reading of the economy.

Dr Lowe said it is possible interest rates could be cut again but hopes that doesn't happen.

"The scenario on which we would be reducing interest rates is one where we are not making progress towards full employment and the inflation target," he said.

But he conceded, looking back, economic growth was weaker than the Reserve Bank had expected.

"The global slowdown is part of the story, but the most important factor is a domestic one, and that is subdued consumer spending as households adjusted to slow wages growth and falling housing prices," Dr Lowe said.

Shadow treasurer Jim Chalmers jumped on the comments, saying the government wants voters to forget that the economy was deteriorating long before the bushfires or the coronavirus outbreak.

"Because of the Morrison government's economic failures, Australia meets the serious challenges and uncertainties of the fire season and the coronavirus outbreak from a position of weakness, not strength," he said.

Australian Associated Press