Country Report Australia June 2009

Outlook for 2009-10

• The popular Labor Party prime minister, Kevin Rudd, faces a tough year as the economy goes into recession, and he will have to defend his government from opposition criticism of its economic management.
• Mr Rudd may call an early general election if upcoming legislation is blocked by the Senate (the upper house).
• 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 go into deficit in 2009-10 as economic weakness depresses 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, with the official cash rate (OCR) set to fallto 2.25% by the end of the year.
• The Economist Intelligence Unit forecasts that real GDP will contract by 1.6% in 2009, owing to the gloomy outlook for global growth and strain in the domestic economy.
• The Australian dollar will weaken against the US dollar in 2009, but is set to recover in 2010, owing to higher commodity prices, a favourable interest-rate spread with other OECD countries and improving global appetite for risk.

Monthly review

• Labor has been rattled by claims that it cannot be trusted to manage the economy after announcing wide budget deficits and large debt increases in its latest budget, which was released on May 12th.
• The government expects its stimulus measures, together with collapsing tax receipts, to deliver fiscal deficits equivalent to 4.5% of GDP in 2009/10 and 4.7% in 2010/11.
• The RBA held the OCR steady at 3% following the meeting of its board on May 5th.
• The WestpacMelbourne Institute Index of Consumer Sentiment dropped by 4.3% in May as consumers responded negatively to the governments budget.
• A surprise increase in employment of 27,300 jobs was reported in April as full-time employment surged by 49,100 jobs.
• The National Australia Banks Business Survey pointed to stabilising business confidence in April, but the index is still at a very low level.

Source: Country Report