RBA Growth Forecasts don’t add up

The latest set of forecasts from the Reserve Bank of Australia seem to be more a case of hope rather than grounded reality. Its latest statement on monetary policy -released last Friday- detailed how our remarkably flexible economy is adjusting as best it can to the mining bust. While activity in the mining sector has turned down, this has been partly offset by an upturn in household service sector activity. As noted by the RBA, the service sector activity is relatively more labor intensive (and less capital intensive) than mining activity. This transition helps to explain the remarkable strength in employment growth despite weak overall output growth. So far so good. But given the nature of the transition underway, it is also hard to see how the economy will pick up in the way the RBA envisages over the coming year. The RBA expects annual economic growth to pick-up from 2.0% in the year ending June 2015, to 2.5% in the year ending June 2016, to a trend-like 3.25% in the year ending June 2017. To read more visit: (VIEW LINK)