Irish economy grows by 0.9% in 2012

IRELAND'S bailed-out economy grew by 0.9 per cent in 2012 but stagnated in the final quarter of last year, official figures show.

"Preliminary estimates indicate that GDP (gross domestic product) in volume terms increased by 0.9 per cent for the year 2012," said a statement from the Central Statistics Office (CSO) on Thursday.

"This is the second year in succession in which GDP showed an increase over the previous year following three years of declines ... during 2008 to 2010."

The annual figure was in line with the eurozone country's own government forecast.

The Irish economy meanwhile recorded zero growth in the fourth quarter of last year, compared with the previous three months, according to the CSO.

It managed to grow by 1.4 per cent in 2011 after it was rescued by an 85 billion euro ($A106 billion) bailout from the International Monetary Fund and the European Union in late 2010.

Ireland, once known as the 'Celtic Tiger' economy for its double-digit growth spanning a decade from the mid-1990s, has contracted sharply in recent years, hit by soaring state debt, a property market meltdown, the global banking crisis and surging unemployment.

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RBA: High dollar good for economy

Cypriot fixation hit markets again overnight, but the US market is making a great recovery.

Australian Money Source: Supplied

INTEREST rates may be on hold for some months as the Reserve Bank latest minutes shows it is comfortable the rate cutting cycle is working with house prices rising, retail spending on the up and consumer confidence lifting.

The central bank maintains there is scope to cut rates further if needed but with the official cash rate at an historic low of 3 per cent the RBA is confident the interest-sensitive parts of the economy are responding.

In the minutes from this month's RBA meeting when the central bank left interest rates unchanged for the second-straight month, indicates a growing satisfaction the cycle that has seen rates fall from a high of 4.75 per cent in November 2011 are beginning to spur the nation's economy.

"While further reductions may be required, on the information currently to hand it was appropriate to hold rates steady, and to assess further developments over the period ahead,'' the minutes said.

Despite concerns about the damage the high Australian dollar is having on the manufacturing and tourism, RBA deputy governor Philip Lowe said the Aussies extended period above parity was good for the overall economy as it had stopped it overheating leading to higher inflation and higher interest rates.

The more cautious approach of the household sector has also seen national savings levels jump $90 billion more a year than in the mid-2000s, which has hurt retailers.

But Mr Lowe in a separate speech said the Aussie dollar - which has risen back above $US1.04 today - had helped to keep economic growth at a sustainable level during a once-in-in-a-century boom in mining investment.

"Had we not experienced the sizeable appreciation (in the value of the Australian dollar) over recent years, it is highly likely that the economy would have overheated and that we would have had substantially higher inflation and substantially higher interest rates,'' he told an economics forum in Sydney today. "This would not have been in the interests of the community at large or, I might add, in the interests of the sectors currently being adversely affected by the high exchange rate.''

He said companies are beginning to adjust to a high Australian dollar exchange rate, in a possible signal that the central bank is resigned to a local currency that remains stubbornly above parity with the US dollar.

"Businesses right across the spectrum, including in the manufacturing sector, are adjusting to the new realities. This adjustment is often difficult, but it does hold out the prospect of higher productivity and higher living standards," Mr Lowe said.

The RBA has lowered interest rates six times since November 2011 to help insulate the nation from weakness in the world economy and boost growth in the non-mining sectors of the economy. The last rate cut was in December, taking the benchmark cash-rate target to 3 per cent, a low previously reached in the aftermath of the global financial crisis.

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RBA: High $A good for economy

THE twin villains of Australian businesses in recent years - the high dollar and increased household savings - have saved the economy from overheating and spared consumers from outsized price hikes.

Reserve Bank of Australia deputy governor Dr Philip Lowe says that though the increase in savings since the middle of last decade and the rise in the Australian dollar had hurt many businesses, they had been good for the overall economy.

The increase in the value of the dollar had helped keep inflation under control and economic growth at a sustainable level during a once-in-in-a-century boom in mining investment.

"Had we not experienced the sizeable appreciation (in the value of the Australian dollar) over recent years, it is highly likely that the economy would have overheated and that we would have had substantially higher inflation and substantially higher interest rates," he told an economics forum in Sydney on Tuesday.

"This would not have been in the interests of the community at large or, I might add, in the interests of the sectors currently being adversely affected by the high exchange rate."

Dr Lowe said Australians were collectively saving $90 billion more a year than they were in the mid-2000s, which had hurt retailers.

But he said the increase in savings had also helped keep inflation around the middle of the RBA's target range of two to three per cent during the past five years, allowing the central bank to cut the cash rate to its equal lowest level on record.

"Consider how the economy might have looked over the past few years had households spent an extra $90 billion each year," he said.

"The exchange rate would have been higher. There would have been more borrowing from the rest of the world. And both inflation and interest rates would have been higher."

The RBA cut the cash rate 1.75 percentage points between November 2011 and December 2012, bringing it to its current level of 3.0 per cent.

Dr Lowe said the rate cuts were starting to have a positive impact on the economy.

Home prices had increased since mid 2012, home lending approvals were up, the stock market had improved and consumer confidence was above its long-run average.

There were also signs the retail and construction sectors were slowly starting to pick up steam and the jobs market, which weakened last year, appeared to be improving.

Dr Lowe said the RBA was waiting to see if lower rates would help lift investment away from the mining sector quickly enough to offset the decline in mining investment following its peak, expected later this year.

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RBA waiting for rate cuts to boost economy

RBA governor Glenn Stevens at a joint committee on the Australian Commission for Law Enforcement Integrity, in Parliament House in Canberra. Source: Supplied

THE Reserve Bank of Australia is waiting to see how recent interest rate cuts flow through the economy before deciding if it needs to cut the cash rate further in 2013.

In the minutes from its February 5 board meeting, released today, the RBA said there were signs the 1.75 percentage points in interest rate cuts delivered between November 2011 and December 2012 were starting to provide a boost to underperforming sectors like housing.

The RBA kept the cash rate on hold at three per cent in February, its equal-lowest level since the global financial crisis.

"Interest rate sensitive parts of the economy had shown some signs of responding to these lower interest rates, which were well below their longer-run averages, and further effects could be expected over time," the RBA said.

"Noting that monetary policy was already accommodative as a result of the substantial easing of policy over the past 15 months, and that this stimulus was continuing to work its way through the economy, the board judged that it was prudent to leave the cash rate unchanged at this meeting."

But it noted the Australian dollar remained "persistently high" and was having a negative impact on some sectors.

The high value of the Australian dollar, along with an expected peak in mining investment during 2013, had earlier prompted the central bank to revise its forecasts for economic growth down to 2.5 per cent for the current calendar year, below its long-term trend.

The RBA said that, with inflation expected to remain within near the middle of its target range of two to three per cent, it had room to cut the cash rate further if needed.

"The inflation outlook, as assessed at this meeting, would afford scope to ease policy further, shout that be necessary to support demand," it said.

The RBA noted that global economic conditions had improved since the start of 2013, with the US avoiding a so-called fiscal cliff of tax hikes and spending cuts, improved economic data from China and the Japanese government announcing policies to grow the world's third-largest economy.

The RBA said iron ore prices had improved significantly during December due to increased demand from China but said the current high levels were unlikely to be sustained.

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