All eyes on Stevens - where to from here?

Glenn Stevens’ statement yesterday was predictably brief. But this afternoon in Brisbane the Reserve Bank governor should expand on his vision of where the economy is headed.

Stevens will address the Economics Society of Australia where he hopefully will elaborate on the looming transition Australia is facing from a nation relying on resource investment led growth to one with more balanced growth.

Some economists have highlighted the increased risk of recession if the non-resources sector does not recover sufficiently as resources investment winds down.

After remaining stubbornly high for more than a year, the recent 10% fall in the Australian dollar should aid that transition. In yesterday’s statement accompanying the RBA decision to keep interest rates on hold, the RBA governor argued that the fall so far would not adversely impact on inflation.

Translating from central bankerspeak: “above parity, the dollar was having a contractionary effect on the economy. Its recent fall has put it into benign territory.”

That clearly gives the RBA scope for further easing on interest rates if the currency remains at these levels.

Most concerning for the RBA would be the recent events in China. Should Chinese growth slow at a more rapid rate than expected, the transition for Australia will be anything but smooth (see Adam Carr's article Crunching China's credit crunch fears).

Elsewhere today, retail sales figures for May are expected to show growth of about 1%, providing evidence of a lift in consumer confidence from the recent cuts to interest rates.

After a serious bounce yesterday, the Australian market is expected to open weaker this morning following falls on Wall Street and in European markets.