Flash: Higher government spending in Australia, low rates period over? - RBS

FXstreet.com (Barcelona) - In Australia, the latest talk is that the new government will increase fiscal spending, and as a consequence, the market should factor in higher net government spending in coming years, according to Greg Gibbs from RBS.

Key Quotes

"As the mining investment boom winds down, government spending on infrastructure projects may help cushion the negative effects on growth. But at the same time resulting in a bigger government debt and a less narrowing in the current account deficit than might have been the case. From a markets perspective, it should mean the down-turn in the AUD and period of low interest rates may be less than otherwise."

"Look for Announcements in coming months. As the government seeks to offset the mining investment down-turn we should expect considerable activity in coming months from the government talking about the need and plans for bigger infrastructure spending. While this will take some time to come to fruition, it may help lift economic confidence in Australia, or help underpin it somewhat if the Chinese economy deteriorates and mining sector confidence sours."