RBA bullish on trading partners
The latest Reserve Bank board minutes start with a much more sanguine view of our trading partners' performance than that portrayed in the popular media.
"Overall, growth of Australia's major trading partners in the June quarter was around its average of the past decade and recent indicators suggested that this pace of growth had continued.
"The Chinese economy was growing at around the pace evident since the start of the year, and members noted that indications were that GDP growth was likely to remain close to the authorities' target of 7.5 per cent over the remainder of the year."
So the parts of the world that matter most to us are running about their average speed, booms and great recessions notwithstanding. You could be forgiven for having missed that as the alarmists tend to receive so much coverage. And this month's RBA board meeting was before the latest clutch of stronger Chinese statistics.
Yes, the capital outflow issue for some emerging markets was noted, especially India, Indonesia, Turkey and Brazil, but that might not be as bad as some portrayed.
"Members noted that the authorities in these four countries appeared to be less concerned about depreciating exchange rates per se than they were about the speed of the depreciation, partly because of the implications for inflation.
"They also observed that emerging market economies generally had become much better placed to handle this type of pressure ... with most jurisdictions now holding large foreign exchange reserves relative to their short-term debt and having relatively less foreign currency-denominated debt than in the past."
Frequently Asked Questions about this Article…
The RBA board minutes said growth of Australia’s major trading partners in the June quarter was about its ten‑year average and that recent indicators suggested this pace had continued — a more positive picture than some media headlines implied.
The minutes noted the Chinese economy was growing at roughly the pace seen since the start of the year and that indications suggested GDP growth was likely to remain close to the Chinese authorities’ target of 7.5% for the rest of the year.
The RBA observed that popular media often emphasized crises and weak growth, while the economic performance of key trading partners was actually running around its average pace — meaning alarmist headlines could give a distorted view for investors focused on Australia’s trading links.
The minutes acknowledged capital outflow concerns in those countries but suggested the situation might not be as severe as portrayed, noting authorities there appeared more concerned about the speed of exchange rate depreciation than depreciation itself because of inflation implications.
The RBA noted many emerging market jurisdictions now hold large foreign exchange reserves relative to short‑term debt and typically have less foreign‑currency‑denominated debt than in the past, putting them generally in a better position to handle currency pressure.
The RBA minutes reported that policymakers in some emerging markets were particularly concerned about the speed of currency depreciation because rapid falls in the exchange rate can feed into higher inflation, which is why authorities monitor and react to the pace of depreciation.
The RBA minutes were written before a fresh set of stronger Chinese statistics, but they already portrayed a relatively sanguine view of China’s growth and the broader performance of Australia’s main trading partners.
The RBA’s view suggests that, despite negative headlines, key trading partners were growing around their long‑run average and that many emerging markets are better able to withstand currency shocks — a reminder for investors to look beyond alarmist media coverage and consider underlying economic indicators.
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