Amadeusz Juskowiak

Australias keating changes economic forecasts

Domestic demand is now expected to make no contribution to Australian economic growth in fiscal 198687 ending June 30 while net exports will account for all of the overall increase Treasurer Paul Keating said here

However he did not say in his speech to the Economic Planning Advisory Council EPAC if the forecast 225 pct rise in gross domestic product gdp had been revised

But Keating said domestic demand could fall slightly this financial year and net export growth will provide the total source of gdp growth

The August budget had forecast domestic demand would contribute 075 percentage points to nonfarm gdp growth of 25 pct while net exports would account for 175 points

Keating said the overall impact of the changed economic parameters is welcome as it appears to have contributed to a slightly more rapid correction in the current account deficit than first anticipated

The government initially forecast a current account deficit for 198687 of 1475 billion our present expectation is that the result will be somewhat lower around 14 billion he said

Partial indicators released since the last meeting of EPAC in December indicate that the 198687 budget strategy is broadly on track Keating said

They indicate that domestic demand has been a little more sluggish than was expected at budget time he said

On the other hand net exports seem to be expanding by more than expected at budget time and this is underpinning growth in domestic production and employment

Keating said it now seems likely that the 198687 inflation rate will exceed the budget forecast of eight pct

Nevertheless there is likely to be a marked slowing in inflation over coming quarters as depreciation and budgetary effects wane he said

Keating said the government expects economic growth to pick up moderately in 198788 due to a further significant rise in net exports and a very moderate but positive contribution from private domestic demand

He said domestic demand growth will be due to a strengthening in real household disposable income

The moderate rise in economic growth next financial year should be sufficient to sustain employment growth at a level broadly equivalent to that of the current fiscal year

The current account deficit will continue to show improvement in 198788 Keating said

As the impact of the exchange rate depreciations of recent years recede further and given continued effective wage restraint inflation should moderate markedly in 198788 he said