Country Report Australia November 2008

Outlook for 2009-10

• The Labor Party prime minister, Kevin Rudd, currently enjoys broad popularity, but deteriorating economic conditions will present an opportunity for the opposition Liberal-National coalition to attack his performance.
• Mr Rudd shares some policy views with the new US president, Barack Obama, which should help relations between the two countries.
• The government will switch to a more expansionary fiscal policy in 2009-10, as it attempts to avert a recession. The fiscal balance will fall into its first deficit since 2001 in 2009.
• The Reserve Bank of Australia (RBA, the central bank) will continue to cut interest rates in 2009, despite inflation still being well above its target range.
• The Economist Intelligence Unit has cut its GDP growth forecast for 2009 to 1%, from 2.1% previously, owing to a weaker outlook for global economic growth and greater evidence of 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

• Labor's lead in polls of voting intention has barely been dented by the change in Liberal leadership, swings against Labor in state elections and turmoil in global financial markets.
• On October 9th the government announced a three-year guarantee of all deposits in banks, building societies, credit unions and Australian subsidiaries of foreign banks, as well as wholesale funds lent to banks.
• On October 14th the government announced a A$10.4bn (US$7bn) spending package aimed at stimulating the domestic economy.
• The RBA cut the overnight cash rate by 100 basis points to 6% on October 8th and then by another 75 basis to 5.25% on November 4th, highlighting a shift in focus from fighting inflation to supporting the economy.
• The unemployment rate rose from 4.1% in August to 4.3% in September, and there was a large shift from full-time to part-time employment.
• The Westpac-Melbourne Institute Index of Consumer Sentiment plunged by 11% in October.
• Consumer price inflation climbed to 5% year on year in the third quarter, but the TD Securities-Melbourne Institute Monthly Inflation Gauge fell by 0.2% month on month in October, the first fall since February 2006.

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52