The future looks bright
The Australian economy looks set for a fast recovery from the recent financial downturn.
Sunshine ahead
Suddenly we can see sunshine ahead for the Australian economy. Comments from the OECD and the IMF told us that Australia will have the best performing economy among the major economies this year, with an almost V-shaped rebound next year. Growth will be better, unemployment will be lower than expected, if the forecasts are anywhere accurate, which will be very good news, inflation will be down.
Strong recovery
The IMF, OECD and World Bank all suggest that the world economy seems to be steadying; the US Federal Reserve also suggested that the American economy was steadying as well. Our slump will be extremely shallow, the recovery will be strong compared with the rest of the developed world, unemployment won't be as bad as previously thought, and Australia's finances won't be as badly wounded by the credit crunch and the cost of stopping the rot, as those in other markets will be.
Positive forecasts
. The IMF said Australia's economy will shrink 0.5% this year, compared with a 1.4% drop predicted in the Fund's April Global outlook.
. The Fund said it saw the economy growing by about 1.5% in 2010, compared with the April forecast for growth of 0.6%.
. The OECD said growth will slow to a contraction of 0.5% this year, before rising to around 1.4% next year. In the domestic economy the swing will be more dramatic.
. The OCED sees domestic demand falling by a solid 2.1% this year, before bouncing to a growth of 1.4% in 2010.
Dramatic improvement
Now that's hardly anything to write home about in a normal year, but in the present and projected context, it will be a solid recovery. In fact it represents a very sharp improvement from earlier this year and … it seems that debt and the Federal deficit may not be as bad as forecast in the recent 2010 budget papers. The improvement in unemployment is dramatic, according to the OECD's forecast. It now won't be anywhere near the terrible forecasts some economists have made of 9% to 10% by next year. The OECD sees it reaching 7.7% next year, which is much less than the recent budget forecasts.
Protecting the economy
Both the OECD and the IMF singled out the way the Government and the Reserve Bank had moved quickly to stimulate and protect the economy with spending packages and very rapid rate cuts.
"The downturn has been milder than in most other advanced countries. This because of strong commodity exports, a flexible exchange rate, a healthy banking sector, and a timely and significant macro policy response."
The IMF also noted the commitment to return the Budget to surplus, saying that "few other advanced economies have adopted such a clear commitment". The OCED went further, suggesting more spending could happen and monetary policy could be further eased. "To mitigate the impact of the crisis, the authorities need to maintain the expansionary thrust of their economic policy monetary policy could be loosened further." "The infrastructure development programme announced in the 2009 -10 Budget is welcome and should strengthen fiscal policy impact." "To enhance future growth potential, the reform of infrastructure regulations should continue, in particular to ensure regulatory streamlining between States."
"The current account is projected to remain in deficit, with net foreign liabilities relative to GDP rising, as Australia will remain an attractive destination for foreign investment, especially in the resource sector," The IMF said in its statement. "In our view, risks to the outlook are balanced."
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