Australia Business Forecast Report Q3 2008

Publication Date	July 2008
Publisher	Business Monitor
Product Type	Report
Pages	62
ISBN Number	not applicable
Product Code	BMI02141

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Summary

Economic Pressures increasing in 2008 Inflation remains a key challenge for Australia's relatively inexperienced Labor government.

Positively, Treasurer Wayne Swan has announced a more frugal fiscal plan for FY2008/09 (July-June) than previously expected, which has been championed by the government as an 'inflation tackling' budget. The spending plan entails AUD33bn worth of budget cuts and savings over the next four years, which are forecast to result in a AUD21.7bn surplus in FY2008/09, up from a projected AUD16.8bn in FY2007/08. Despite the budget cuts, the government has not reneged on AUD47bn worth of income tax cuts over the next four years, which will help households, particularly lower- and middle-income earners, cope with the rising cost of living.

Prime Minister Kevin Rudd, who has appeared untouchable since coming into office, has seen his approval rating slump to its lowest level since the November 2007 election. Despite receiving praise for a number of welcomed policy changes, primarily signing the Kyoto Protocol on climate change and apologising to Aborigines for past injustices, pressing economic woes are now damaging his reputation for economic management. Again, inflation lies at the heart of the problems, with surging fuel prices leading to a slump in Rudd's popularity in national opinion polls in June. With oil prices set to remain elevated over the coming months, and with his 'fuel watch' programme embarrassingly receiving criticism from within his own cabinet, Rudd needs to show he can deal effectively with domestic economic issues if he is to ensure a successful term in office and, ultimately, be re-elected in three years' time.

Economic growth surprised on the upside in Q108, with real GDP rising 3.6% y-o-y, following a revised 3.9% expansion in Q407. While the stronger than expected growth rate has reassured the government in an environment of global economic uncertainty, it has added to concerns over domestic inflation, which, at a 16-year high of 4.2% in Q108, remains well above the central bank's 2.0-3.0% comfort zone. Continued strong price growth has reignited concerns that domestic interest rates - already at a 12-year high of 7.25% - could head even higher this year, further hurting Australian households. Going forward, high inflation and interest rates will dampen domestic consumption, while exports could suffer on the back of a slowdown in the global economy. Nevertheless, domestic demand should remain well supported by a tight labour market and rising incomes from the mining boom and forthcoming income tax cuts, while exports will be bolstered by sustained strong demand from Asia, particularly China. As such, we do not envisage a marked downturn in overall growth this year.

We expect the Rudd government to implement reforms aimed at further strengthening Australia's business environment, which already scores highly (71.8, with a global ranking of 16th out of 178 states) in our ratings. Rudd is likely to pursue labour market reform and increase spending on education and training to ease Australia's skills shortages, as well as improving the country's congested infrastructure. In addition, the government is planning to cut red tape for small and medium-sized enterprises (SMEs), and improve the country's technological base.

Content

Executive Summary
Economic Pressures Increasing In 2008
Chapter 1: Political Outlook
- Swot Analysis
- Domestic Politics
- Rudd's Honeymoon Period Ends As Economic Woes Prevail
- The Popularity Of Australian Prime Minister Kevin Rudd Will Continue Declining From Record Highs, As His New
- Labor Government Faces Growing Economic Challenges.
- Table: Australia Political Overview
Chapter 2: Economic Outlook
- Swot Analysis
- Economic Activity
- Significant Downside Risks To Growth
- The Continued Strength Of Australia's Economy, In Particular Domestic Demand, Is Reassuring The Government At
- A Time Of Global Economic Uncertainty. However, Strong Growth Is Also Continuing To Fuel Concerns Over Domestic
- Inflationary Pressures.
- Table: Economic Activity
- Fiscal Policy
- Prudent Budget For Fy2008/09
- Australia's Federal Government Budget For Fy2008/09 Targets A Record Budget Surplus To Offset The Effects Of
- The Global Economic Turbulence And Record High Inflation.
- Table: Fiscal Policy
- Monetary Policy
- Still Room For Another Interest Rate Hike
- Even After Hiking Interest Rates By A Cumulative 300 Basis Points Since 2004, And Despite Signs That Domestic
- Demand Is Moderating, , And Despite Signs That Domestic Demand Is Moderating, Australia's Central Bank May
- Be Forced To Raise Borrowing Costs Again This Year.
- Table: Monetary Policy
- Balance Of Payments
- Current Account Deficit To Narrow Gradually
- Australia's Current Account Deficit Continues To Rise, Hitting A Record High Of Aud19.5bn In Q108 - Equivalent
- To Nearly 7.0% Of The Nation's Gdp.
- Table: Balance Of Payments
Chapter 3: Special Report
- Business Outlook For Global Frontier Markets
- Growing Fast On The New Frontier
- The 41 States That Bmi Examines In A New Report On Our Online Service May Make Up Only A Small Slice Of The World
- Economy, But They Possess Characteristics That Will See Them Gain Importance In The Eyes Of Investors And Global
- Businesses Over The Coming Years.
- Table: Frontier Markets - Key Data And Projections For Top 10 Countries
- Frontier Investment
- Potential And Pitfalls
- The Spectacular Macroeconomic Performance Of Frontier Markets In Recent Years Has Been Matched By Mildly
- Successful Efforts To Deepen Capital Markets.
  - Table: Gdp Per Capita, Us$ (In Order Of % Increase)
  - Table: Diversity Through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market Indices
- Regional Overview
- Laos
- Neighbouring Economies The Key To Growth
- Laos's Gdp Growth Has Been Boosted In Recent Years As Neighbours China, Thailand And Vietnam Compete For
- Its Natural Resources. Gdp Expansion In 2007 Has Been Estimated At 7.6% And We See Annual Growth Remaining
- Above 7% For Our Five-Year Forecast Period.
- Yemen
- Huge Potential, But Don't Bank On Gcc Membership
- Markets Do Not Come Much More Frontier Than Yemen, And, As Would Be Expected, There Is Huge Potential For
- Development, With The Prospect Of Eventual Gcc Membership Likely To Act A Key Investment Pull.
- Table: Yemen Economic Activity
- Democratic Republic Of The Congo
- Mining Industry To Drive Growth
- The Democratic Republic Of The Congo's Mining Industry Will Be A Key Driver Of Growth And Is Likely To Attract
- Significant Levels Of Fdi, With Our Real Gdp Forecasts Standing At 8.3% And 7.9% In 2008 And 2009, Respectively.
- Table: Democratic Republic Of The Congo - Economic Activity
- Cuba
- Investment Prospects After Fidel
- The Accession Of A New Leadership Structure In Cuba Has Sparked Excitement That The 45-Year-Old Trade Embargo
- With The Us May Be Lifted And Cuba May Move Toward Market Liberalisation.
- Table: Cuba Macroeconomic Data And Forecasts
- Mongolia
- Minerals To Drive Economic Boom
- Mongolia Is In The Midst Of A Massive Resource-Led Economic Boom That Should Lift Gdp Growth Into The Double
- Digits And Underpin Robust Increases In Exports And Inflows Of Foreign Investment Capital Over The Long Term.
- Table: Mongolia - Economic Activity
Chapter 4: Business Environment
- Swot Analysis
- Business Environment Outlook
- Institutions
- Table: Bmi Business And Operational Risk Ratings
- Table: Bmi Legal Framework Ratings
- Infrastructure
- Market Orientation
  - Table: Asia, Fdi Inflows
- Table: Bmi Trade Ratings
- Table: Top Export Destinations
- Operational Risk
Chapter 5: Key Sectors
- Telecoms
- Executive Summary
  - Figures Provided By The International Telecommunications Union (Itu) Show That For 2006, The Number Of
- Internet Users In Australia Stood At 15.3mn (Equivalent To A Penetration Rate Of 72.9%).
- Table: Australian Telecoms Sector - Internet - Historical Data &Amp; Forecasts
- Autos
Executive Summary
The Australian Automotive Industry Achieved Record Sales For 2007, With Growth Of 9% Y-O-Y To 1,049,982 Units.