VZCZCXRO3822
RR RUEHPT
DE RUEHBY #0759 2290313
ZNR UUUUU ZZH
R 170313Z AUG 09
FM AMEMBASSY CANBERRA
TO RUEHC/SECSTATE WASHDC 1928
INFO RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEHKO/AMEMBASSY TOKYO 3655
RUEHWL/AMEMBASSY WELLINGTON 0082
RUEHBJ/AMEMBASSY BEIJING 9569
RUEHUL/AMEMBASSY SEOUL 9887
RUEHJA/AMEMBASSY JAKARTA 5508
RUEHDN/AMCONSUL SYDNEY 4864
RUEHBN/AMCONSUL MELBOURNE 6612
RUEHPT/AMCONSUL PERTH 4877

UNCLAS CANBERRA 000759 
 
SENSITIVE 
SIPDIS 
 
E.O.  12958: N/A 
TAGS: ECON ENRG EINV AS
SUBJECT:  RESERVE BANK SIGNALS ECONOMIC RECOVERY 
 
¶1. (U) SUMMARY.  The Reserve Bank of Australia (RBA) believes the 
economy has weathered the global financial crisis better than 
expected.  The RBA Governor stated August 13 that this may turn out 
to be one of Australia's mildest post-war downturns. The RBA 
believes its monetary policy has been effective and expects 
continued signs of recovery, leading to an almost certain rise in 
interest rates in the near future.  The Government is more cautious, 
believing that while performance to date has been much better than 
expected, there are some significant downside risks in the second 
half of 2009.   END SUMMARY. 
 
 
ECONOMY RESILIENT THROUGH CRISIS 
-------------------------------- 
 
¶2. (U) Reserve Bank of Australia (RBA) Governor Stevens stated on 14 
August before a House of Representatives' Standing Committee on 
Economics that this could be "one of the shallower recessions 
Australia has experienced". He noted that external conditions facing 
Australia have improved, as global output has stabilized -- improved 
in East Asia -- and trade and industrial production increased in 
recent months.  Domestic demand held up with retail sales rising in 
the first half of 2009.  Though core inflation has remained 
worryingly high (an annualized rate of 3.2% in 2009Q2) headline 
inflation has fallen significantly to 1.5 percent over the year to 
June.  Unemployment, after rising quickly from record lows in early 
2008, has held relatively steady at about 5.8% in the past three 
months.  Consumer confidence received a boost from a rise in 
household net worth, caused by increases in house prices as well as 
housing credit. 
 
 
COMMODITY DEMAND DRIVEN BY CHINA 
-------------------------------- 
 
¶3. (SBU) Stevens emphasized that an important factor in the 
country's resilience was the vitality of its exports, which rose 
over the six months to March -- compared to falls for most other 
countries in the same period.  China's continuing appetite for 
resources, aided by that country's massive economic stimulus 
program, has been largely responsible for this.  Some economic 
recovery in Japan and Korea - both leading trade partners - has also 
helped Australian exports. 
 
IMPLICATIONS FOR MONETARY POLICY 
-------------------------------- 
 
¶4. (SBU) The RBA signaled for the first time that it will likely 
raise interest rates "back towards normal levels" in the near 
future.  Stevens said candidly that although the global economy 
could suffer a further fall, he expressed confidence that "Chinese 
policy-makers will grow their economy over the medium term," which 
would further shield the Australian economy.  Furthermore, Stevens 
said that "the exceptional monetary stimulus in place at present" 
will become unnecessary if global economic recovery continues. 
 
Government is More Cautious 
--------------------------- 
 
¶5. (SBU) Department of Prime Minister and Cabinet Deputy Secretary 
for Economics Gordon DeBrouwer said that Government shares Stevens' 
view that the Australian economy has performed much better than 
expected over the past eight months.  However, the GOA is more 
cautious in looking at the second half of 2009 because of concerns 
about that the end of consumer-oriented stimulus spending is likely 
to slow retail spending and a feeling that unemployment is likely to 
keep rising.  DeBrouwer said that the Government is concerned that 
Qkeep rising.  DeBrouwer said that the Government is concerned that 
there might still be some bad numbers that could undermine 
confidence.  He said that the RBA position is influenced by its 
concern that very low interest rates could lead to asset bubbles, 
particularly in housing. 
 
¶6. (SBU) COMMENT:  Governor Stevens' statement marks a significant 
turning point for monetary policy in Australia.  The RBA considers 
Australia has emerged in relatively good shape from the global 
financial crisis.  Barring the reappearance of another downturn, the 
Bank sent a clear signal that it will now move to re-adjust policy 
settings to ensure a sustainable recovery while keeping inflation in 
check. 
CLUNE