The Reserve Bank has slashed its near-term forecasts for economic growth because of drought, bushfires and the coronavirus outbreak, but is still predicting a rebound in activity later this year and into 2021.
However, inflation and wages growth are expected to remain subdued, and unemployment is likely to remain above five per cent for a while yet.
However, Reserve Bank governor Philip Lowe was largely upbeat about the outlook when he appeared before the House of Representatives economics committee on Friday for his six monthly hearing.
"When we met six months ago, I said that there were signs that the Australian economy may have reached a gentle turning point," he said in his opening statement.
"The data that we have received since then are consistent with this."
Annual economic growth is predicted to pick up to 2.75 per cent by the end of the year and to three per cent by end-2021.
It was just 1.7 per cent as of the September quarter last year.
However, in the short-term the central bank - in its quarterly monetary policy statement also released on Friday - reduced its annual growth rate to two per cent for both the December quarter 2019 and the March quarter 2020.
This compares with 2.25 per cent and 2.75 per cent respectively as forecast in November.
"At the moment the weather is having a material effect on our economy," Dr Lowe told the committee in Canberra.
He said the drought has subtracted 0.25 percentage points from economic growth in each of the past two years and the central bank is expecting the same detraction this year - "a significant hit to GDP".
The Reserve Bank is also expecting the bushfires to have reduced growth by 0.2 percentage points over the December and March quarters, although this will be offset by the rebuilding effort over the rest of the year.
Separately, the spread of the coronavirus is expected to wipe a further 0.2 percentage points from growth in the March quarter.
However, Dr Lowe warned the potential risk for the Australian economy is bigger than SARS epidemic in 2003.
"The truth is none of us know how this is going to play out," he said.
"If the infection rate does not come down quickly ... because we are so integrated with China, we are going to feel the effects here."
Home buyers can at least be assured interest rates won't be going up any time soon.
"We will not be raising interest rates until we are very confident that inflation is sustainably in the two to three per cent range," Dr Lowe said.
Asked by committee chair and Liberal MP Tim Wilson whether he has a timeframe for this, the governor said: "I wish I could give you the answer ... I don't have a crystal ball."
Inflation has persistently fallen short of the target in the past couple of years.
On the flipside, Dr Lowe said negative interest rates are "extraordinarily unlikely", while the need for other options, such as quantatitive easing (QE), has not been reached.
"I do not expect it to be reached. So, it is not on our agenda at the moment," he said.
He reiterated that QE - where the central bank buys government bonds and other securities to pump money into the economy - would only be considered should the cash rate reach 0.25 per cent.
The Reserve Bank left the cash rate at a record low 0.75 per cent at its board meeting this week, after cutting it three times last year.
Financial markets are predicting a reduction to 0.50 per cent by September.
Australian Associated Press