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SYDNEY, Nov 22 (Reuters) - Australia's central bank is optimistic that the fortunes of the country's hard-hit mining states are turning for the better, a fillip for economic growth and inflation nationally.
In a speech on Tuesday, Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent said headwinds that were holding back Western Australia and Queensland were set to abate.
"There are reasonable prospects for stronger growth of nominal demand in the mining states and, by extension, for the economy overall," said Kent, who heads the RBA's economics unit.
"That would contribute to a rise in domestic inflationary pressures and a gradual return of inflation to more normal levels."
The upbeat comments were the latest sign the central bank is likely done easing policy for now, following cuts in August and May that took interest rates to a record low of 1.5 percent.
Kent singled out Western Australia as the country's main soft spot for jobs, housing and business investment. Indeed, he suggested the state alone was responsible for the lack of any gains in full-time employment nationally so far this year.
While the jobless rate has drifted down to 5.6 percent in 2016, the dearth of new full-time jobs was seen as an Achilles heel for the economy.
"The decline in full-time employment over 2016 appears to reflect a further decline in demand conditions within the Western Australia economy," said Kent.
Forward indicators of labour demand suggested the weakness would linger for some time yet, while non-mining states could look forward to moderate jobs growth.
That weakness was also a major reason wage growth slowed to a record low of 1.9 percent in the year to September, crimping spending power nationally.
The state's housing market had been badly hit, with a glut of new supply coming on stream just as population growth slowed sharply.
Even businesses outside of mining had responded by reining in their investment, masking increased spending in states such as New South Wales and Victoria, he said.
Yet, Kent saw reasons for hope. He estimated a long pullback in mining investment was about 80 percent done, removing one drag on activity.
A rebound in prices for major export commodities, notably coal and iron ore, had also boosted Australia's terms of trade.
"If our forecasts are right, the terms of trade will shift from the substantial headwind of recent years to a slight tail breeze providing some support to the growth of nominal demand," Kent said.
At the same time, states with less exposure to mining - New South Wales, Tasmania and Victoria - had seen an improvement in their economic conditions, while Victoria had further benefited from a marked acceleration in population growth.