Chinese economic slowdown at top of RBA’s mind
The Reserve Bank governor said a wobble in China’s economy was on the central bank’s agenda, shortly after forecasters slashed growth expectations for Australia’s biggest trading partner.
RBA governor Michele Bullock said the slowdown in China would have flow-on effects on the Australian economy, particularly through reduced iron and coal exports.
Ms. Bullock said one of her main concerns was that if China’s trade war with the United States resulted in very high tariffs, it would lead to a decline in Chinese manufacturing.
“China is a very important part of our trade relations, it accounts for 30 percent of our exports, so what happens in China is very important to us,” he told Senate estimates on Wednesday.
“What we’re observing there is that the real estate market in China is still struggling at the moment. They’re managing to balance that with growth in other areas. But there’s still a risk of growth in China.”
“This is something that is on our minds as well.”
Ms Bullock said she believed Chinese authorities were not willing to bail out struggling developers and were instead trying to stimulate consumer demand by subsidizing household goods.
“So they’re bending as hard as they can on monetary policy and fiscal policy, but in terms of the real estate market, I think it’s going to remain in the doldrums for a while.”
In its latest economic outlook released on Tuesday, the Organization for Economic Co-operation and Development sharply lowered its forecast for China’s GDP growth to 4.4 percent in 2026 and 4.3 percent the following year.
The OECD said a campaign by Chinese officials to eliminate participation, such as excessive competition between electric vehicle and solar panel makers, would reduce business investment.
However, Australia’s GDP growth rate forecast has been raised to 2.3 per cent in 2026 and 2027 as higher disposable incomes fuel the acceleration of private consumption.
The OECD has predicted that Australia’s inflation rate will continue to ease and reach the midpoint of the RBA’s target rate of 2-3 per cent by 2027, despite the recent resurgence in inflation.
Headline inflation rose to 3.8 percent in October.
Ms Bullock said the RBA expected inflation to fall but the board was aware that inflation expectations would harden if it remained above the target range for a long period.
“Therefore, the board is carefully examining these latest figures to determine the extent to which this is temporary or signals to us that there are more permanent inflationary pressures in the economy,” he said.
If future months’ data show this to be more permanent, then it “will have implications for the future path” of monetary policy.
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