RBA warns of a period of contraction, not a recession

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Although the chances of a recession hitting Australia are small, the RBA has warned that a period of contraction is still possible.

Australia’s impressive record of 24 years without recession should not lull people into thinking that there would be no end to the expansion, said Philip Lowe, deputy governor at the Reserve Bank of Australia.

"The probability of recession is low, but there is a probability that at some point we will have a downturn," Lowe remarked in a conference.

"The idea that the Australian economy can just keep growing without having short periods of contraction is a mistake. What we should be hoping for is that, when those periods inevitably happen, that they are short-lived.”

Despite this, Lowe stated that the RBA had an upbeat view of the economy.

"We think the economy's on a gradually improving track; that the unemployment has stabilised; that growth has been 2.0 per cent to 2.5 per cent for a while, but will gradually pick up."

Lowe said the bank forecasts that suggested national house prices will begin to drop soon did not concern the RBA. Indeed, some period of moderation would actually be a good thing, he commented.


 

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