The Reserve Bank of Australia has said in its quarterly statement that while the floods and Cyclone Yasi in Queensland may cause inflationary pressure, GDP forecasts have been upgraded for 2011 to 4.25%.
The statement indicates that interest rate rises are still a possibility for the second half of the year.
RBA governor Glenn Stevens says in the statement that the central forecasts were finalised before the assessment of the damage from Cyclone Yasi. And although he says that growth in 2010 is now thought to have been weaker than expected, coal production will boost GDP in the June quarter.
“There will also be a boost to activity from the rebuilding of flood-damaged dwellings as well as the public spending on repairing and rebuilding of public infrastructure, although this is likely to occur gradually over a couple of years.”
“Overall, by the June quarter the level of GDP is expected to be back close to where it would have been in the absence of the floods and, over the remainder of the forecast period, to be slightly above where it would have been.”
GDP growth through 2010 is now expected to be at 2.75%, down from the 3.5% expected during the last report.
However, growth for 2011 is now set to be at 4.25%, up from 3.75%.
Inflation-wise, the RBA says the tightening labour market will negate the impacts of a higher exchange rate and slow consumer spending. It expects inflation to have been at 2.25% through 2010, lower than the 2.5% previously expected.
Forecasts for the remainder of the year remain the same, with inflation to be at 3% by December 2011 and at 2.75% by June 2012.
The RBA also says the unemployment rate is set to fall to 4.5% by 2013, but also points out some risks to the economy – the growing threat of debt problems in Europe and the impact of the natural disasters in Queensland on the macroeconomic.
“In addition, given the La Niña weather pattern, there is the possibility of further extreme weather events over the next few months.”
The Australian sharemarket has opened higher this morning despite a flat night on Wall Street where investors are still concerned over the unrest in Egypt.
The benchmark S&P/ASX200 index was up by 43 points or 0.97% to 4864.2 at 12.20 AEST, while the Australian dollar remained well above parity at $US1.01c.
AMP shares were up 1.1% to $5.51, while Commonwealth Bank shares were also up by 0.8% to $52.99. Westpac shares gained 0.2% to $23.32 as ANZ rose 0.6% to $24.09.
QBE Insurance will pay $US700 million for Bank of America’s Balboa division in order to increase its business in America.
QBE said it would take on about $US1.2 billion of Balboa’s insurance liabilities and make a payment of $US700 million for the distribution rights of the company and the transfer of its portfolio.
Meanwhile, it also produced solid financial reports.
“QBE expects to report improved net profit after tax (NPAT) in the second half compared with the same period last year, with full year NPAT to be line with market consensus of around $US1.28 billion,” the company said in a statement.
The company also said its insurance profit margin is expected to be 15%, below the earlier guidance of 16-18%.
“This is attributable to the higher than expected frequency of small and large catastrophe claims through the second half and the continuing low interest yields in the US, UK and Europe,” QBE said in a statement.
Department store giant Myer is considering a bid on the Sass & Bide fashion label for a $70 million deal, according to a report in the Australian Financial Review.
The report states the fashion label has been looking for investors for some time.
Shares on Wall Street remained flat overnight despite good results from retailers, with the Morgan Stanley retail index jumping 2.8% on the growth of department stores such as Sears. Investors are still worried over the impact Egypt’s unrest will have on the American economy.
The Dow Jones Industrial Average gained 20.29 points or 0.17% to 12,062.29.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
