February Minutes From Reserve Bank of Australia (RBA)

Here is a portion of the RBA minutes released tonight..  Continued from previous post:  $XAU/USD (Gold Spot) Trying To Ski Through Downtrend, 50DMA Resistance.

International Economic Conditions

Members were briefed on developments in the international economy. Overall, the recovery from the global recession was continuing. The IMF had recently upgraded its world growth forecast for 2010 to 3.9 per cent, from 3.1 per cent in October. There had been significant revisions for the United States, China and India, but more modest revisions for the euro area. The Bank’s staff had also revised up their world growth forecasts for 2010, though only modestly as their forecasts had already been significantly higher than those of the IMF.

While growth had resumed in the major advanced economies, there was significant spare capacity and measures of core inflation were gradually falling. Labour markets were very weak, although there were some signs of stabilisation in the United States. US GDP had grown by 1.4 per cent in the December quarter, which was stronger than expected. There was a significant contribution from the inventory cycle. GDP data for the United Kingdom were also available, with the preliminary estimate showing growth of 0.1 per cent in the December quarter, after six straight declines.

Growth in the advanced economies was currently being supported by the inventory cycle and stimulatory policy settings. At the household level, there was growth in spending in the United States and Japan, but spending continued to contract in many European economies. Members discussed this trend, which reflected weak income growth and rising household saving rates in some of the larger European economies. The latter appeared to reflect weak consumer sentiment, broader uncertainty about economic prospects, and – in some economies – concern about high public debt levels. Regarding investment spending, there had been a slight increase in the United States in the December quarter, after a decline of more than 20 per cent over the previous five quarters. As yet, there was limited evidence of a pick-up in investment in the euro area or Japan.

Members noted that one particular challenge facing many of the advanced economies was the growth in public debt. From the point of view of long-run fiscal sustainability, this needed to be checked, but tightening fiscal policy at an early stage could undermine economic recovery. Concerns about fiscal issues had recently focused on Greece, which had entered the crisis with relatively high public debt and had seen its budget deficit rise to 13 per cent of GDP in 2009.

The issues were quite different in Asia (outside of Japan), where growth was.... [read more].