Australia – Statistical Data Included

Australia – Statistical Data Included

Economic growth, which had surged to 5 per cent in 1998 on the back of buoyant consumption and investment, has begun to moderate in 1999 as private investment has slowed. Growth may be closer to 4 per cent in 1999 and is projected to fall to 3 per cent in 2000 as investment weakens further and the growth of consumption eases. It may then return to around 4 per cent in 2001, with investment picking up again. With export markets and the terms of trade improving, the current account deficit should fall to 4 1/4 per cent of GDP in 2001.

The Reserve Bank has signalled that, with the end of the Asian crisis, monetary policy is likely to revert to a neutral position in the period ahead. The authorities will have to remain vigilant to one-off price effects associated with the new Goods and Services Tax being incorporated into ongoing inflation. Fiscal policy should continue to be directed at keeping the budget in surplus. This should help to maintain financial market confidence in the face of still large current account deficits.

Economic growth is high but slowing…

Economic growth has begun to slow from the high rates of the past two years, falling to 4.1 per cent (year-on-year) in the second quarter of 1999. This mainly reflects falling private business investment, especially in the mining industry, and the completion of projects related to the Sydney Olympics. The latest Survey of Capital Expenditure intentions points to a further large drop in mining investment in the coming year and a generally flat outlook in other sectors, although the overall favourable environment for investment would suggest a somewhat less weak outlook. The mainstay of high economic growth over the past year or so has been household consumption expenditure, which grew by 5 per cent in the year to the first half of 1999. Large increases in household wealth, mainly reflecting capital gains on houses and equities as well as demutualisation of the Australian Provident Fund, have encouraged households to borrow to increase consumption expenditure relative to disposable income. With strong growth in domestic demand and depressed export markets, the current account deficit rose further in the first half of 1999, to almost 6 per cent of GDP. The terms of trade stabilised in the first half of 1999, after having fallen steadily since the onset of the Asian crisis.

… and unemployment continues to fall

Employment has continued to grow strongly in recent months. This, together with a stable participation rate has resulted in a one percentage point decline in the unemployment rate over the past year, to a little over 7 per cent. Vacancy data point to further solid growth in employment in coming months. At the same time, wage increases have slowed to an annual rate below 3 per cent. Some business surveys suggest that the low point in wages growth may have been reached, although the expected increases in wage growth are modest.

Domestically-sourced inflation is low, but rising

Inflation has edged up to 1.7 per cent in the year to the third quarter of 1999. Falling imported goods prices have been holding down the overall inflation rate. Excluding imported items, goods inflation has increased to an annual rate of around two per cent. With economic recovery underway in Asia, excess supply in many markets for manufactured goods is likely to decline, increasing imported inflation. Recent increases in oil prices will have a similar effect.

Monetary conditions are accommodating and budget balances are stable

The officially targeted short-term interest rate was raised by 0.25 percentage point in November 1999, to 5.0 per cent. This was the first increase in almost five years. Even so, monetary conditions should continue to support activity over the coming year. Largely reflecting international trends, the ten-year government bond rate has increased to 6.6 per cent. The general government budget surplus should remain at around 1/2 percentage point of GDP over the projection period, despite the introduction of the tax reform package in July 2000. This reform, which includes the introduction of a Goods and Services Tax (GST), offsets the consolidation that would otherwise have occurred.

Economic growth is projected to slow but inflation is likely to rise

Economic growth is projected to slow progressively to around 3 per cent in 2000, mainly on account of weakening fixed investment, slowing consumption spending as gains in households wealth moderate and a lower rate of stock building, but to bounce back to around 4 per cent in 2001 as business investment begins to recover. Strong employment growth should continue, cutting the unemployment rate to 6 1/2 per cent in 2001. Inflation is projected to pick up to 4 per cent in 2000, including a 2 percentage point contribution from the tax package, but to ease back in the following year as cuts in some indirect taxes occur. Abstracting from the effects of the tax package, inflation is likely to rise to 2 1/2 per cent in 2001. With export markets recovering and the terms of trade rising, the current account deficit is projected to fall to 4 1/4 per cent of GDP in 2001. The main risks to these projections are that households continue to enjoy large capital gains on houses, sustaining strong consumption expenditures, a nd that inflation expectations rise as GST is introduced.

Demand, output and prices

1996 1997 1998

Percentage

Current prices changes, volume

billion A$ (1997/98 prices)

Private consumption 307.5 3.9 4.3

Government consumption 96.9 1.9 2.7

Gross fixed capital formation 116.5 11.6 6.2

Final domestic demand 521.0 5.2 4.4

Stockbuilding [a] 1.7 -1.6 1.7

Total domestic demand 522.6 3.6 6.2

Exports of goods and services 100.8 11.5 -0.4

Imports of goods and services 101.7 10.3 5.9

Net exports [a] -0.9 0.2 -1.3

Statistical discrepancy [a] 0.0 0.1 0.2

GDP at market prices 521.7 3.9 5.1

GDP deflator – 1.4 0.3

Memorandum items

Private consumption deflator – 1.4 1.3

Industrial production – 1.6 1.1

Unemployment rate – 8.5 8.0

Household saving ratio [b] – 3.8 2.1

General government financial balance [c] – -0.6 0.5

Current account balance [C] – -3.2 -4.8

1999 2000 2001

Private consumption 4.8 3.8 3.5

Government consumption 4.2 2.2 2.3

Gross fixed capital formation 3.4 1.6 3.7

Final domestic demand 4.4 3.0 3.3

Stockbuilding [a] 0.5 -0.4 0.0

Total domestic demand 4.8 2.5 3.3

Exports of goods and services 2.8 7.8 7.6

Imports of goods and services 6.5 4.0 5.6

Net exports [a] -0.8 0.7 0.3

Statistical discrepancy [a] -0.2 -0.3 0.3

GDP at market prices 3.9 3.0 4.0

GDP deflator 1.3 2.6 2.5

Memorandum items

Private consumption deflator 1.4 4.2 3.5

Industrial production 2.3 3.0 3.3

Unemployment rate 7.3 6.9 6.5

Household saving ratio [b] 2.1 2.8 2.7

General government financial balance [c] 0.7 0.5 0.6

Current account balance [C] -5.7 -4.9 -4.3

Note: National accounts are based on chain linked data.

This introduces a discrepancy in the indentity between real

demand components and the GDP. See “Sources and Methods” for further

details.

(a.)Contributions to changes in real GDP (percentage of real GDP

in previous year), actual amount in the first column.

(b.)As a percentage of disposable income.

(c.)As a percentage of GDP.

COPYRIGHT 1999 OECD Publications and Information Centre

COPYRIGHT 2000 Gale Group