Country Report Australia February 2009

Outlook for 2009-10

• The popular Labor Party prime minister, Kevin Rudd, faces a tough year as the economy weakens, and will have to defend his government from opposition criticism about the economic downturn.
• Recent economic measures should ensure that Australia endures only a shallow recession, but the government may still have to pay a political price at the next general election, which will probably be held in 2010.
• Mr Rudd shares some policy views with the new US president, Barack Obama, and this should help to improve relations between the two countries.
• The fiscal budget is expected to remain in deficit in 2009-10 as economic weakness weighs on revenue collection and the government continues to spend to stimulate the economy.
• The Reserve Bank of Australia (RBA, the central bank) will continue to cut interest rates in the first quarter of 2009, with the official call rate falling to 2.5%.
• The Economist Intelligence Unit now forecasts that real GDP will fall by 1% in 2009 (from growth of 0.5% previously), owing to a weaker outlook for global economic growth and greater evidence of strain in the domestic economy.
• The Australian dollar will weaken in 2009-10, owing to poorer economic conditions, lower commodity prices, falling domestic interest rates and high levels of risk aversion among global investors.

Monthly review

• The latest polls of voting intentions show that Labor’s lead over the opposition Liberal-National coalition fell to eight points (54% support for Labor, compared with 46% for the coalition) in January.
• Amid a rapidly deteriorating economic environment, the government released its Updated Fiscal and Economic Outlook on February 3rd. It is planning to spend a further A$42bn (US$26bn) on grants and infrastructure.
• The RBA announced on February 3rd that it would lower its official cash rate by another 100 basis points, to 3.25%, effective from February 4th.
• A private monthly survey of inflation, the TD Securities-Melbourne Institute inflation gauge, recorded its third consecutive month-on-month fall in December, declining by 0.2%, and pulling year-on-year inflation down to 2.2%.
• The merchandise trade surplus of A$1.4bn in December was Australia's fifth consecutive monthly surplus. However, exports fell by A$339m (US$212m) compared with the November level, to A$21.5bn.

This report covers the following industry codes:
SIC Code: 49;60;1;10
NAICS Code: 22;52;11;212