The Bank remains wary on better growth from developed economies markets and rightly notes that only "some" commodity prices have improved, with coking and thermal coal prices low enough to be causing headaches for Australian producers.
The RBA seems more optimistic on China though, with its assessment of the recovery of "fairly robust". While China has turned a corner from mid-year I would continue to be wary of recent momentum given most recent data is lapping a very weak period at the end of 2011. Post CNY will give us a better guide as to whether China is genuinely gaining momentum.
But while we have seen offshore developments mitigate some of the more immediate downside risks to growth, the bigger picture still looks weak enough to justify the case for further cuts.
The big issue remains the looming pothole in growth from the peak in mining investment. While iron ore prices have recovered, this perhaps only marginally affects the roll over in the investment pipeline.
Major mining companies are under huge pressure from shareholders to use its capital more wisely than spend it on the next mega project. As the chart left shows, the contribution to growth from mining and energy investment has been gigantic in the past few years. The next release of the Capex survey will be critical in timing of when this rolls over.
The RBA did point to some signs of life elsewhere on the back of the "significant" easing of monetary policy in 2012. Housing market activity has picked up a little, with housing prices up in the December quarter. But the gains are pretty modest so far. Building approvals, for example, are up from the lows, but rise isn't a particularly convincing trend.
But I dont think the RBA will be entirely unhappy if growth is modest, as "businesses are likely to be focusing on lifting efficiency under conditions of moderate demand growth". Better productivity something the RBA has talked about at length in supporting better longer term growth and inflation outcomes.
