Reserve Bank of Australia (RBA) deputy governor Ric Battellino on Tuesday looked on the bright side and actually sounded quite realistic.
He did not try to gloss over the effect of the global financial crisis and the ensuing Great Recession on the domestic economy, while addressing an urban development convention in Brisbane.
After contracting in the final quarter of last year, Mr Battellino says activity will shrink again this year, despite policy actions – interest rate cuts and spending increases – designed to soften the blow.
“These measures will go a long way to offsetting the negative influences on the economy coming from abroad, but the reality is that we cannot fully insulate ourselves from what is happening elsewhere in the world,” he said.
“As such, GDP is likely to fall in 2009.”
But Mr Battellino found reasons to be, if not exactly cheerful, then at least cautiously hopeful.
There was the familiar recitation of why Australia has fared better than other countries during the financial disaster – less reckless lending, better regulation and “disciplined monetary and fiscal policies in earlier years”.
Mr Battellino acknowledged the difficulties surrounding the need to rebuild confidence in the financial system.
They include the complexity of the problems and the common desire to exact retribution from the institutions at the epicentre of the earthquake rather than to get them working.
“These issues are not new and, by the standards of some past banking crises, the US, the country at the heart of the global crisis, is making reasonable progress,” Mr Battellino said.
The same guarded optimism that could be found elsewhere in his talk, including his discussion of the US economy.
“On the real economy, we are starting to notice the odd positive economic indicator in the run of US monthly data, in contrast to the universally negative outcomes a few months ago.
“Let’s hope this continues,” he said.
He even had an upbeat view on the rapid deceleration in China’s economic growth rate.
Chinese authorities had shown “great speed and vigour” in boosting their economy with monetary and fiscal measures.
“There are some signs that these measures are starting to work,” he said.
Mr Battellino believes China may already have seen the worst.
“While China is not going to return to a 12 per cent growth rate any time soon, it is quite possible that the past six months will turn out to have been the period of maximum weakness in the Chinese economy,” he said.
And he detected signs of life on the domestic front.
Official interest rate cuts have flowed through to lending rates more fully than in other countries where credit markets remain dysfunctional.
“In the case of housing, this has produced a very quick response in terms of the pick up in loan demand,” Battellino said.
And he is positive on the outlook for the housing market.
“We continue to believe that the market here will hold up better than overseas,” he said, citing the absence of the kind of deterioration in lending standards that undermined housing markets in the UK and the US.
He is also optimistic about the impact of easier fiscal policy, saying the turnaround in the aggregate budget position of Australian governments has been from a surplus of 1.5 per cent of GDP to a deficit of 2.5 per cent of GDP.
“This turnaround – about four per cent of GDP – is the largest in the post war period, he said.
RBA watchers will read Mr Battellino’s speech and rightly conclude that it suggests another interest rate cut at the RBA’s board meeting next week is by no means certain.
But the fact that he can point out the positives in the economic outlook and not seem to be clutching at straws is surely no bad thing.