Australia to release 'better' GDP forecast: Treasurer Wayne Swan

The government's so-called mid-year economic and fiscal outlook will be published in Canberra tomorrow, the treasurer said in a statement on his Web site today.

Australia's economy is growing faster and generating more jobs than the government forecast six months ago, as record interest rate cuts and more than A$20 billion (US$18 billion) in cash handouts to consumers spur domestic demand. Rising household confidence and China's demand for natural resources were among reasons central bank Governor Glenn Stevens last month raised borrowing costs from a half-century low.

“Because of the efforts of Australians, combined with the actions taken by the government and the Reserve Bank, our forecasts for growth and unemployment will be better,” Swan said in an e-mailed statement today.

The treasurer in May predicted Australia's economy would shrink 0.5 percent in the 12 months through June 2010, before expanding 2.25 percent the following fiscal year.

The central bank, which on Nov. 6 is also due to publish revised economic forecasts, in August scrapped a prediction the economy will fall into a recession. GDP will rise 1 percent in fiscal 2010 and 3.25 percent the following year, it said.

Growth Accelerates

GDP growth unexpectedly accelerated in the second quarter at the fastest pace in more than a year, expanding 0.6 percent from the first quarter when it gained 0.4 percent, the statistics bureau said Sept. 2. Third-quarter figures will be published next month.

The International Monetary Fund last week reiterated its prediction that Australia's GDP will gain 0.7 percent this calendar year and 2 percent in 2010.

Mounting evidence of economic rebound prompted Stevens to raise borrowing costs last month by a quarter percentage point to 3.25 percent, from a half-century low of 3 percent. The move made Stevens the first Group of 20 policy maker to raise interest rates since the height of the global financial crisis.

Eighteen of 22 analysts surveyed by Bloomberg News expect Stevens to raise the overnight cash rate target by another quarter-point on Nov. 3. The rest forecast a half-point increase.

Emergency Lows

“Stevens has previously indicated that rates cannot stay at 50-year emergency lows,” Swan said today.

The treasurer also said while the economy is performing better than the government forecast in May, when it last published predictions, recessions among trade partners such as the U.S. will have an impact on Australia's budget.

“Unfortunately the budget has still taken a big hit from the global recession, and challenges remain in areas like business investment and the terms of trade,” a measure of income from exports, Swan said.

The government said in May it faces record budget deficits until 2016 as it embarks on a stimulus program to boost investment in roads, railways, ports and schools.

The budget shortfall will climb to A$57.6 billion in fiscal 2009-10 and A$57.1 billion the following year, Swan said May 12.

Australia's jobless rate, which Swan predicted would reach 6 percent in this year's second quarter and 8.5 percent 12 months later, fell in September for the first time in five months, declining to 5.7 percent from 5.8 percent.

Keeping borrowing costs at “very low levels” may be “imprudent” and threaten the central bank's goal of keeping inflation between 2 percent and 3 percent on average, the Reserve Bank of Australia said in minutes of its October meeting published last month.

The consumer price index rose 1 percent in the third quarter from the previous three months, when it gained 0.5 percent, a report showed last week.

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