Australia central bank lifts economic growth forecast

Australia's central bank on Thursday said the economy was "performing well" and lifted its growth outlook while keeping interest rates at a record low but warned there were concerns about global trade.

The announcement comes as worries also begin to emerge about the country's once booming housing market, which has slowed in recent months.

The Reserve Bank of Australia said this G20 economy continues to chug along and should expand around 3.5 this year and next, a fraction up from its previous forecast and continuing a global record 26 years of continuous growth. Its main cash rate was left unchanged at 1.50 percent to stimulate consumer and business spending.

 

But it said there were doubts prompted by the "direction of international trade policy in the United States", with Donald Trump having embarked on a protectionist agenda sparking standoffs with key partners including China and the European Union.

Meanwhile, at home consumers have looked increasingly jittery, with Australians tempering their spending and confidence steadily ebbing this year.

And a drop in house prices may be good news for renters, but it could hit the broader economy with recent buyers saddled with assets worth less than they paid for.

"It wouldn't be too much of a concern yet, in the near term," Jason Yek of Fitch Solutions told AFP. "But I do think housing prices are going to go down over coming quarters."

House prices in Sydney and Melbourne have increased by around 70 percent this decade, with wage growth lagging well behind, despite low unemployment rates.

Many Australians already find balancing the household books tougher despite the booming market and household debt remains at one of the highest levels of all OECD.

Some analysts predict household finances will only get tighter as a rash of interest-only home loans granted in 2015 end a five-year grace period.

By 2020, Yek said, many Australian home owners will have to start paying down the principle too.

According to NAB's Consumer Anxiety Index the cost of living is still the biggest driver of Australian consumer angst.