Country Report Australia March 2009

Outlook for 2009-10

• The popular Labor Party prime minister, Kevin Rudd, faces a tough year as the economy goes through recession, and will have to defend his government from opposition criticism about its economic management.
• Recently introduced economic measures should ensure that Australia endures a relatively shallow recession, but the government may still have to pay a political price at the next general election, which is likely to 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 go into deficit in 2009-10 as economic weakness dampens 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 second quarter of 2009, with the official call rate set to fallto 2.5%.
• The Economist Intelligence Unit forecasts that real GDP will contract by 1.2% in 2009, owing to a gloomy outlook for global economic growth and strains 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

• Business groups have asked the government to soften its planned emissions trading scheme, arguing that it will create extra costs at a time of economic pain. The opposition wants more ambitious targets for cutting emissions.
• The treasurer, Wayne Swan, is assessing whether planned investments by Chinese-government-owned businesses in the Australian mining sector are in the nation's interest.
• At its March meeting, the RBA left the official cash rate unchanged at 3.25%.
• Australia, New Zealand and the ten-member Association of South East Asian Nations (ASEAN) signed a joint free trade agreement on February 27th.
• The economy contracted by 0.5% quarter on quarter in the last quarter of 2008, as a running down of stocks stripped 1.6 percentage points from GDP growth.
• The seasonally adjusted current-account deficit fell by A$3bn (US$1.9bn) to A$6.5bn in the last quarter of 2008, as coal and iron ore exporters benefited from the high prices that were agreed earlier in 2008.

Source: Country Report