Paul Osborne
(Australian Associated Press)

Australia remains in a strong position to withstand economic shocks from the coronavirus, drought and bushfires, Treasurer Josh Frydenberg says.

The Reserve Bank, in its decision to keep interest rates on hold at 0.75 per cent, noted it expected the economy to strengthen over the next two years growing by 2.75 per cent this year and three per cent next year.

The forecasts were in line with those laid out in the government’s mid-year review in December despite domestic and global pressures.

“The Australian economy has proven to be remarkably resilient,” Mr Frydenberg said.

The RBA found the coronavirus was “having a significant effect on the Chinese economy” but it was too early to determined how long-lasting the impact will be.

“With China accounting for a third of Australia’s exports we are watching these development closely,” Mr Frydenberg said.

“Australia is in a strong position to respond to the challenges we face as responsible budget management has given us the ability to respond to economic shocks without increasing taxes or cutting essential services.”

Shadow treasurer Jim Chalmers said three interest rate cuts since the May election had not been enough to turn around an economy which was slowing well before the bushfire crisis and the coronavirus outbreak hit.

He noted RBA governor Philip Lowe’s comment that “the household sector has been adjusting to a protracted period of slow wages growth” which “is expected to remain at around its current rate for some time yet”.

“Australians are struggling, weak consumption is being driven by stagnant wages, household debt is at record highs, almost two million Australians are looking for work or for more work but the Liberals and Nationals have no plan to turn things around,” Dr Chalmers said.

“Because of the Morrison government’s economic failures, Australia meets the serious challenges and uncertainties of the fire season and the coronavirus outbreak from a position of weakness, not strength.”

Ben Udy, from Capital Economics, said the RBA was being cautious now but persisent weakness in the underlying economy would likely see a rates cut in April.

“We still think the bank is too optimistic on the outlook for growth,” he said.