Country Report Australia September 2008

Outlook for 2008-09

• The Labor prime minister, Kevin Rudd, has made a number of policy changes that mark a clean break from the previous administration, but they may create some new challenges.
• The Labor government will continue to reverse some of the changes that were made to industrial relations laws by the previous government. However, it will keep in place a number of restrictions on unions' right to strike.
• Inflationary pressures are likely to remain strong in 2008-09, given that capacity constraints and skilled-labour shortages will take some time to ease.
• The government will cut taxes in 2008-09, but will also trim public spending growth in order to contain inflationary pressures. The fiscal surplus will average a healthy 1.3% of GDP in 2008-09.
• The Economist Intelligence Unit has lowered its 2009 economic growth forecasts to 2.1%, from 2.4% previously, in response to a weaker outlook for economic growth in OECD countries.
• The Australian dollar will weaken in the second half of 2008 and in 2009, owing to poorer economic conditions, lower commodity prices and falling domestic interest rates.

Monthly review

• Polls of voting intention held in early August indicate that the federal Labor party’s lead over the coalition remains intact, while the opposition leader, Brendan Nelson, slipped even further in polls of preferred prime minister.
• The Northern Territory election held on August 9th was unexpectedly close, with Labor securing only a one-seat majority. This bodes ill for the West Australian Labor state government, which heads to the polls in September.
• In early August the Australian Competition and Consumer Commission released findings that, while grocery retailing is workably competitive, there are factors limiting price competition.
• The Reserve Bank of Australia (the central bank) held the overnight cash rate steady at 7.25% following the meeting of its board on August 5th 2008, but also stated that the scope for loosening monetary policy was increasing.
• The number of private-sector housing approvals fell by 0.4% month on month in June 2008, after a large 7.3% fall in May, while housing finance fell by 1.5% in June 2008, to stand 11.3% below the peak reached in December 2007.
• The seasonally adjusted merchandise trade deficit fell to A$10m (US$8.9m) in June 2008 from A$656m in May. These gains were primarily owing to higher prices for commodity exports.