Global economy in better shape, geopolitical risks remain – RBA
The global economy is in better shape than a year ago, although geopolitical risks have the potential to derail its momentum, a senior Australian central banker said on Wednesday.
“The turning point (for economic growth) was around the end of last year. While it doesn’t seem to have picked up further recently, neither is this expansion a flash in the pan,” said Luci Ellis, assistant governor at the Reserve Bank of Australia (RBA).
Ellis said geopolitical risks in Asia were “low-probability, high impact events” and a danger to global growth forecasts.
In the eurozone, there was no longer an existential crisis for the European Union (EU) although it remains to be seen how Brexit plays out, Ellis noted.
There had been a groundswell of anti-euro sentiment in Italy, Greece and other euro zone states, fueled in part Britain’s shock decision to leave the EU in June 2016.
But global worries have shifted to Asia, with North Korea launching intercontinental ballistic missiles in defiance of U.N. sanctions and amid an escalating standoff with the United States.
Domestically, Ellis noted that high household debt in Australia was a “potential exacerbating factor” in the event of an economic shock, although it was unlikely to be a triggering factor.
The RBA has left interest rates at a record low 1.50 percent after last easing in August 2016 as it balances tepid inflation and wages growth against rising household debt.
Ellis added that policy needed to remain expansionary globally if inflation remains low despite a pick-up in economic growth. But she maintained her view that global wage growth and price pressures will rise eventually.
Source: Reuters (Reporting by Swati Pandey; Editing by Kim Coghill)