Due to projections that the country's resource boom will have a peak earlier than anticipated, the Reserve Bank of Australia (RBA) downgraded Australia's growth forecast for the year to June 2013 to 2.75 per cent from 3.5 per cent.
"Most of this revision to the outlook is accounted for by a change in the profile for mining investments which is now forecast to peak a little earlier and at a lower level than had been earlier expected," the RBA said.
"This change reflects the reappraisal of spending plans in the coal and iron ore sectors as well as a reassessment of the profile for spending on some large and complex LNG projects." RBA added.
The central bank pointed out that Australia's outlook for growth is sensitive to prospects for mining investment and the timing and extent of the anticipated recovery. But it said mining exports will still grow substantially due to the higher capacity from current pipeline of investments.
On the opposite end, the RBA hiked its inflation forecast to 3.25 per cent from 2 to 3 per cent because of the larger-than-expected increase in prices in the September quarter. Economists said the higher inflation rate would mean the central bank would have less room to reduce interest rates, which would dash hopes of another key lending rate cut before Christmas.
CommSec chief economist Craig James said a rate cut in December could be ruled out, except if a financial disaster would erupt in Europe.
But the RBA foresees employment growth to be subdued at just a little above the present 5.4 per cent.
"The current forecast anticipate only modest employment growth in the near term, given the softer outlook for demand growth, the high exchange rate and the resulting pressure on firms to boost competitiveness," the RBA said.
For 2014, the central bank gave a range of 2.25 to 3.25 per cent growth rate forecast from its August forecast of 2.5 to 3.5 per cent economic expansion.