Country Report Australia July 2009

Outlook for 2009-10

• The popular Labor Party prime minister, Kevin Rudd, faces a tough year as the economy enters 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 of parliament).
• 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 set to fall? to 2.5% by the end of 2009.
• The Economist Intelligence Unit forecasts that real GDP will contract by 0.4% in 2009. Exports are holding up well amid the global economic recession, but domestic demand is expected to contract.
• The Australian dollar will weaken against the US dollar in 2009, but is set to recover in 2010, owing to higher commodity prices, favourable interest rate spreads with other OECD countries and returning global appetite for risk.

Monthly review

• Peter Costello, a former treasurer, announced in mid-June that he would not stand for parliament at the next election, ending speculation that he might eventually challenge Malcolm Turnbull for the Liberal Party leadership.
• In late June Mr Turnbull accused Mr Rudd of misleading parliament and called for his resignation on the basis of news of an e-mail that turned out to be a forgery. The incident has damaged the Liberals' public support.
• The upper house has deferred until August consideration of legislation establishing a Carbon Pollution Reduction Scheme.
• In the last week of June the federal government introduced several pieces of legislation aimed at replacing multiple state regulations applying in some areas with a single national regime.
• Australia's economy expanded by 0.4% quarter on quarter in the first three months of 2009, buoyed by growth of 0.6% in private consumption spending, a 2.7% increase in exports and a 7% fall in imports.
• The seasonally adjusted current-account deficit shrank for the fourth consecutive quarter in January-March 2009, to A$4.6bn (US$3.3bn).

Source: Country Report