RBA's Stevens backs continued govt stimulus 

Source: ONE NewsAustralia

Reserve Bank of Australia (RBA) chief has given his full backing to the stimulus actions taken by the federal government, a slap in the face for the coalition that opposes them.

RBA governor Glenn Stevens also warned that the "road to prosperity" would have "bumps, twists and turns".

Speaking for the first time since raising the cash rate for the second time in as many months this week, Stevens lauded the actions of the government in steering the economy through the downturn.

"Public finances remain in good shape, with a medium-term path for the budget back towards balance, and without the debt burdens that will inevitably narrow the options available to governments in other countries," Stevens said in a prepared speech on Thursday.

"Sensible policy frameworks - both macroeconomic and microeconomic - remain in place, and they have worked."

But he said the economy is still in a business cycle, even if it has been spared the worst of the recent downturn.

"We will need to continue investing in all the things that helped us get through the recent episode," he told an audience in Melbourne.

Treasurer Wayne Swan earlier reiterated that continuing with the government's stimulus was appropriate.

He said Treasury had estimated that private business investment was set to be around $42 billion lower through the downturn as a consequence of the global recession.

Business investment would drop 6.5%, its sharpest fall since the early 1990s, company profits would shrink by 3.5%, and annual export income would plummet by 19.5%.

"It's for all of these reasons that the government has judged that the planned gradual withdrawal of fiscal stimulus remains appropriate," Swan said in an address to a Melbourne audience.

The run of data released so far this month suggests that economic growth in the September quarter was subdued.

Following on from Wednesday's soft retail sales data for the September quarter, Thursday's monthly international trade report suggested exports would again be a drag on gross domestic product (GDP) when the national accounts are released next month.

Australia posted its largest monthly international trade deficit in 18 months in September, Australian Bureau of Statistics data shows.

The monthly trade balance of goods and services widened to a seasonally adjusted $1.849 billion deficit in September, after a revised $1.651 billion shortfall in August.

Although economists were expecting a larger deficit of $2.15 billion in September, it was still the fifth straight monthly deficit.

"While net exports will still detract from growth, the trade deficit was smaller than we had been anticipating and reduces the risk of a negative September quarter GDP print in mid-December," RBC Capital Markets senior economist Su-Lin Ong said.

"At this stage, GDP looks like it could post a flat to possibly small positive in the quarter."

The growing trade gap came as both imports and exports grew by five per cent in September from August.

Ong said the rise in imports highlighted the resilience of the domestic economy, while a firmer global backdrop may have helped the rise in exports in the month.