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SYDNEY: Australia's central bank governor on Friday said the economic slowdown should be one of the "shallower" the country has faced and played down fears of a double-dip recession.
Reserve Bank of Australia (RBA) chief Glenn Stevens, in bullish remarks to parliament's economics standing committee, tipped massive government stimulus to offset a fall in consumer spending.
He said Asian giant China, a key market for Australia's huge resources sector, would pull through stronger than expected, adding that the prospect of a second worldwide slump looked increasingly unlikely.
"On the basis of the information to hand at present, this may well turn out to be one of the shallower recessions Australia has experienced... The global economy could suffer another setback of some kind. The likelihood of that has declined in our view, but the possibility remains," Stevens said.
Stevens also said inflation would not fall as much as feared and noted unemployment, steady at 5.8 per cent last month, was beating earlier forecasts.
He added that interest rates, slashed to a 49-year low of 3.0 per cent, would also have to move back towards "normal levels".
"The economy appears to be weathering a very large storm pretty well and the community's confidence about the future has improved commensurately," he said.
Prime Minister Kevin Rudd sounded a more cautious note, warning unemployment and interest rates would both rise and budgets would have to fall to return to surplus.
"These things will make things hard for the future," he told commercial radio. "We must embark on this road to recovery but for anybody to assume this is going to be a bed of roses, it won't be."
Australia dodged a technical recession, defined as back-to-back quarterly contractions, in June, making it the best-performing Western economy at the time.
The government has unveiled stimulus spending worth more than A$50 billion (US$42.02 billion) since the global downturn began, including cash hand-outs and infrastructure projects.
"Some of the recent strength in private demand might prove to be temporary," Stevens said. "But at the same time, the contribution of public spending to growth in demand is likely to increase over the year ahead."
A stock market recovery and better-than-expected jobs figures have bolstered optimism over the economy, highlighted by a survey this week which put both consumer and business confidence at a two-year high.
The central bank earlier flagged the start of a recovery this year, raising its 2009 growth forecast to 0.5 per cent rather than a 1.0 per cent contraction.
Australia is on course to become one of the first countries to raise interest rates in the wake of the worst global slowdown since the Great Depression of the 1930s.
- AFP/yb
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