Bangkok (UN Information Services) – Australia’s economic growth is forecast to moderate to 3.2 per cent in 2008 from 4.3 per cent last year, underpinned by private consumption, although authorities are set to maintain a tight monetary policy to reduce consumption, according to the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
In its Economic and Social Survey of Asia and the Pacific, ESCAP said growth in 2007 marked 17 years of expansion and was up from 2.7 per cent in 2006 led by domestic demand growth, renewed strength in household consumption and continued private sector investment growth. But ESCAP expects a slower outlook to persist into 2009 with growth at 2.8 per cent.
In 2007, private fixed investment was moderating as commodity prices levelled off and amid signs of fewer investment opportunities in natural-resource-based sectors, ESCAP said.
ESCAP said the subprime credit market concerns in United States had yet to directly affect business sector investment decisions during 2007. Also, strong profit growth had encouraged investment in the non-mining sector. But tighter global money market conditions did affect domestic banks. Interest rates rose in the second half of the year as strong credit demand led to a switch from external to domestic funding.
The strong growth in non-farm sector production was partly offset by the large fall in farm sector output due to a drought, ESCAP said.
The economy’s buoyant growth was sustained by tax cuts and continued growth in employment and wages. This was also reflected in tight labour market conditions. “Full-time employment increased, with the unemployment rate at historical lows, while labour participation was at a record high,” ESCAP said.
Household consumption has continued to underpin increases in household wealth, housing prices increasing over the year and a strong Australian dollar cushioning the economy against the impact of higher oil prices.
Concerns over inflationary pressures led to monetary policy tightening with official cash rates raised by the Reserve Bank of Australia to seven per cent in February 2008 after a peak in 2007 of 6.75 per cent. Consumer price inflation was also tending to push higher by year’s end at three per cent over the year to the December quarter, up from 1.9 per cent in the September quarter.
Australia’s strong domestic growth also led to a widening in the current account and trade deficits in 2007 with import growth reflected in a strong domestic demand and a strong exchange rate. But capital imports remained strong as the appetite for investment remained robust.
However, ESCAP said it expected private investment to slowdown with tight monetary policy “and fewer opportunities in the mining sector.”
On the trade front, ESCAP pointed to the considerable benefits for Australian exporters if the Doha round of international trade talks was successfully concluded. “Under Doha reforms, Australia is estimated to gain US$856 million in the short-term and US$755 million in the long term,” ESCAP said.
Furthermore, by way of a comprehensive agreement, Australia, New Zealand and Japan would benefit significantly, with the short-term gains for Australia at US$1.2 billion and in the long term, rising to US$2.1 billion.
Further information on the Survey can be found at:
For more information, please contact:
Hak-Fan Lau, UN Information Services, ESCAP
Tel.: +66-2-288-1866, Mob.: +66-84700-1147
Ari Gaitanis, UN Information Services, ESCAP
Tel.: +66-2-288-1862, Fax: +66-2-288-1052