Australia economy set for year of growth

Press, 3 July 1985, Page 34

Australia economy set for year of growth

PA-AAP Sydney The Australian economy is set for another year of sound growth, although the re-emergence of inflation will continue to be a major fear, according to a survey of market economists. The survey, for the financial year 1985-86, expects the economy to show real growth based on the gross domestic product of 3 per cent to 4 per cent, and a nominal growth of 10.00 per cent. The non-farm sector will be the economy’s driving force, with the private sector expected to become a major contributor after lagging behind the public sector in 1984-85, economists said. The expected real growth rate for 1985-86 compares with this year’s estimated 4.8 per cent increase. The survey, of 13 banking economists, however, saw the rural sector maintaining its 1984-85 growth levels or easing marginally in over-all terms in the year ahead. The economists’ fears of renewed inflation were evident in consumer price index estimates for 1985-86. These ranged between 7.5 per cent and 9 per cent compared with 1984-85’s 5 per cent. In spite of optimism about growth prospects, the economists predicted the unemployment rate would remain close to the current rate of 8.6 per cent, with estimates ranging from 7 per cent to 9 per cent. Inflationary fears were underlined by estimates of average weekly earnings growing at a rate of between 7 per cent and 9.5 per cent for 1985-86, compared with this year’s 7.20 per cent.

A feature of the survey was the reduced concern surrounding the Federal Budget deficit from its “enemy number one” position a year ago. The economists are hoping for a deficit of $5.50 billion to $6.20 billion, compared with this year’s $7 billion.

Mr Jeff West, economist with Trans City Holdings, Ltd, said the economy in 1985-86 should receive a large stimulus from the dollar’s decline. Mr West warned that some of the gains from the dollar’s devaluation may be lost through increases in average weekly earnings,, reducing Australia’s over-all international competitiveness. Mr Ray Block, an economist with Dominquez Barry Samuel Montagu, believes the Federal Treasury’s forecasts of a 4 per cent growth in real terms,, with a 1 per cent contribution from the devaluation of the dollar, are unlikely. However, the benefits from the dollar’s decline should still contribute around 0.5 per cent to the gross domestic product, Mr Block said. Mr Don Stammer, economist and partner with Bain and Company, said the new financial year would see fairly strong growth. Interest rates would fall at short notice when, “and only when, the Australian dollar is firmer.” The mystery for financial markets lies in the money supply growth, with the data clouded by the entry of new banks, bopsting the M 3 rate up to 20 per cent from its present 15.4 per cent. However, the economists expected the broad money

data, including both bank and non-bank holdings, to show some over-all slowing in money growth. Forecasts ranged from 10 per cent to 13.5 per cent from the present 14.8 per cent annual growth rate. Commonwealth Banking Corporation economists expected the main concerns for the economy in the year ahead would be inflation and wages growth, the value of the Australian dollar and interest rate pressures. Mr Bob Graham, chief economist with Westpac Banking Corp, said the Federal Government should move to restrain growth in order to diminish inflationary pressures. Australia’s trading position, aided by the dollar’s decline, was forecast to improve with the current account deficit — a major factor behind the dollar’s fall earlier this year — easing to $7 billion to $10.5 billion from the 1984-85 level of 11 per cent. At the same time, the trade account is expected to recover to a surplus of between $3OO million to $1 billion as exports are boosted on the dollar’s fall and consequent higherpriced imports decline in demand. This compares with the present deficit for 1984-85 of $1.6 billion.