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Australia nearing recovery peak: RBA

Australia is approaching the peak of its V-shaped recovery from the global downturn, according to a longstanding board member of the Reserve Bank of Australia (RBA).

Jillian Broadbent, the only current board member to serve three terms, also said Europe was unlikely to retain the euro currency in the long term.

However, Europe would not move to a two-currency model until the continent's economy was stronger, she said.

"I don't think they can hold on to the euro forever," she said.

Ms Broadbent told a stockbrokers conference in Melbourne on Tuesday that Australian economic growth would pare back in 2010-11 while equity markets would remain "jumpy".

She said Australia's recession has been "mild" thanks to the federal government's fiscal stimulus response to the global financial crisis.

"(But) we are close to the top of the V in the economic recovery" and growth will fall back."

Australia's terms of trade were now being driven by high commodity prices such as iron ore and copper, which would produce a windfall in the coming years, she said.

While broadly positive on Australia's economic outlook, Ms Broadbent said world growth of two per cent in 2011 was still achievable, despite the economic recovery in Europe being "very hesitant".

Ms Broadbent said Australia was well positioned in terms of its balance sheet and cashflow, and earnings from the resources sector were feeding throughout the national economy.

Australia's debt incurred from the recent stimulus packages would be repaid in three years, she said.

Market speculation that China would pare back its holdings of US Treasuries were "a real concern" and equity markets would remain "jumpy" as corporate earnings growth was curtailed and global debt concerns hang over the markets.

Ms Broadbent said she did not expect a double-dip slowdown nor for the local stock market to return to its March 2009 lows.

When asked about the outlook for Australia's interest rates, Ms Broadbent said "markets, while jumpy, do adjust for capital flows".

"Interest rates at the long end (of the curve) will be higher," she said.

By contrast, US and European central banks were likely to keep interest rates lower at the long end (of the curve) than they should, producing a steeper yield curve.

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

More about: RBA, Reserve Bank of Australia

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