Australians look forward to brightening economy

Press, 23 August 1984, Page 23

Australians look forward to brightening economy

NZPA-AAP Canberra Continuing strong growth, more jobs, fewer on the dole queue, lower inflation, and further falls in interest rates—that is the economic outlook for Australia in the next year, according to the Treasurer, Mr Paul Keating. The missing ingredient in the recovery so far, business investment, also is expected to turn round this financial year. In his budget speech, Mr Keating said that the Government’s strategy in the coming year would be to ensure economic recovery continued, that inflationary pressures were reduced further, and that job prospects were improved. “We have the policies to overturn the history of more than a decade, a history of economic stops and starts, of recoveries that were frittered away in one senseless, destructive price and wage round after another,” he said. “This time, with the cooperation of all Australians and the Australian trade union movement, the story will be different.” Mr Keating said he expected over-all economic growth to moderate this financial year after it was spurred along by the rural recovery after the breaking of the drought last year. The non-farm sector was expected to grow 5 per cent, slightly up on last year. Over-all economic growth would not be as high because last year’s strong outcome for the rural sector would not be repeated. Mr Keating predicted over-all growth would be about 4 per cent up on last

year’s gross domestic product, which was $33,035 million. “Such growth will see a further large increase in jobs, and another fall in the unemployment rate,” he said. “By June next year, we expect that since coming to office more than 400,000 new jobs will have been created in Australia. “That will place us well on the way to fulfilling our election-time promise to create 500,000 jobs in three years. “Underpinning those achievements, inflation will remain at its lowest level in more than a decade,” he said. “With continued wage moderation and non-infla-tionary monetary policy, the rise in the consumers price index is expected to be a little over 5 per cent between the June quarters, 1984 and 1985— a dramatic change from the 11.5 per cent inflation rate we inherited.” The CPI rose 3.9 per cent last financial year, partly because of the exclusion of the basic health care costs from the index. With basic health costs included, the underlying rate of inflation is 6.5 per cent. Mr Keating said that the Government’s policies were on track and producing “results that our opponents and many commentators said were not achievable in such a short time." “Australia now has before it an historic opportunity to embark upon a new growth path,” he said. “That is the achievement of non-inflationary growthsustainable economic

growth—that will provide the lasting jobs so desperately needed by the unemployed. Growth that will provide real benefits to other needy groups in our society. “We can take this path, or we could opt for a return to the sickness of the 1970s—with high inflation, low growth, and declining job opportunities. '“There can only be one path to take. There is no real choice. This budget is directed at ensuring that the opportunity does not pass us by.” In one of the papers accompanying the Budget, Treasury cautioned that there were many uncertainties about future growth. It said that sustained growth would depend heavily on a continuing recovery in private business investment and continued moderation in labour costs, including on-costs. “Such a recovery process in Australia would be taking place in a world where growth is expected to moderate, financial markets are precariously placed, and competitive pressures are becoming increasingly fierce,” it said. In the years ahead, Australia’s domestic economic policies would have to take account of this uncertain and demanding world environment. “The 1984-85 Budget has been framed in that context of potentially strong growth although with many uncertainties. “The Government has sought a balance between the requirement for more restrained fiscal stimulus and the need to cement the

continuing operation of the Prices and Incomes Accord,” it said. Treasury said that private sector activity was expected to strengthen, markedly this financial year, with firm growth in consumption, an acceleration of business investment, and continuing strong growth in housing. Business investment was projected to turnaround to a 5 per cent increase this financial year after falling in each of the last two years. “Private business fixed investment increased in the second half of 1983-84 and, with profit growth strong, inflation declining, and demand growing strongly is forecast to continue to grow,” it said. “The increase is projected to be around 5 per cent in 1984-85 which assumes that, as in previous recoveries, business will revise upwards somewhat their investment expectations as the recovery proceeds.” It noted that this already had begun to show in recent surveys of business investment intentions. The housing sector recovery was expected to broaden as the year progressed, to include unit dwellings as well as house

construction. Private sector dwelling investment was set to increase strongly, perhaps 15 per cent In the economy as a whole, public sector demand also was forecast to continue to grow strongly. Exports were expected to pick up sharply but this would be offset largely by higher imports. Private dwelling investment was set to increase strongly, perhaps 15 per cent this financial year. The Treasury assumed in its forecasts that the world recovery would continue but at a slower pace; inflation in the major industrial economies would remain at about 4.5 per cent; the Prices and Incomes Accord would continue to work successfully, Government monetary policy would promote lower inflation; the exchange rate trade weighted index would be unchanged; the rural sector would return to normal seasonal conditions; the Budget deficit would be $6745 million, including a domestic deficit of about $3877 million and an overseas deficit of about $2,868 million; and that Government outlays would rise 13 per cent and receipts would increase 17.7 per cent.