Economic Forecast
3 May 2009
The Australian economy is now in recession, due to the effects of the Global
Financial Crisis (GFC) and high interest rates through to early 2008.
The weakness in the economy began with consumer spending, but is now
spreading to business investment. Consequently, the economy began contracting in
the December qurter 2008, and this contraction is likely to continue through to
the June quarter 2009. The economy is expected to stagnate through the remainder
of 2009. However, 2010 will see a return to economic growth.
2009
In 2009, GDP is forecast to contract by 1.2 per cent. The GFC, combined with
the Reserve Bank holding on to high interest rates for too long in 2008, will
see continued weakness in consumer spending and plummeting business investment.
2010
In 2010, KPMG Econtech expects economic growth to improve to 2.1 per cent.
Low interest rates will support a recovery in housing activity, while the
competitive Australian dollar combined with an economic recovery in Asia will
boost net exports.
Rudd Government Challenges
The Rudd Government has provided appropriate fiscal stimulus to reduce the depth
of the recession. Importantly, most stimulus measures have been temporary in
nature and so do not undermine the long-term budget position. The Rudd
Government has also acted to secure the funding position of the banking system,
limiting the credit squeeze flowing from the GFC.
The Rudd Government's next challenge will be to facilitate Australia being early
rather than late to recover, compared with other economies. This will require a
flexible approach to foreign investment to support a recovery in business
investment. It will also require labour market flexibility, so that wages growth
can weaken in line with the weak labour market, acting as an automatic stabiliser
for the economy.
Comparison of Forecasts
This time last year, Econtech expected an economic slowdown in Australia, while
the IMF was more optimistic, and expected a continuation of normal economic growth. Now that we are in
the midst of a recession, both sets of forecasts have been downgraded, but the
IMF downgrade is greater. Indeed, the IMF now forecasts a more protracted
recession than does KPMG Econtech.
The latest IMF world forecasts, released in April 2009, show a protracted
recession for Australia. A fall in GDP of 1.4 per cent in 2009 is followed by
growth of only 0.6 per cent in 2010. However, inflation is forecast to remain
above 1 per cent.
In contrast, in Australia KPMG Econtech expects this recession to resemble the early 1990s
recession in depth and breadth. So while we forecast a similar fall in GDP to
the IMF in 2009, we do expect economic recovery to begin during 2010, with
economic growth of 2.1 per cent on a year-average basis and 3.6 per cent on a
year-end basis. We agree that unemployment is likely to approach 8 per cent.
However, we expect the recession to send inflation down close to zero.
|
|
2009 |
2010 |
|
IMF |
|
|
|
GDP (year average) |
-1.4 |
0.6 |
|
CPI (year end) |
1.9 |
1.1 |
|
unemployment (year average) |
6.8 |
7.8 |
|
Econtech |
|
|
|
GDP (year average) |
-1.2 |
2.1 |
|
CPI (year end) |
0.8 |
0.7 |
|
unemployment (year average) |
6.0 |
7.5 |
For more information, email Dinar Prihardini or
phone her on (02) 6248 1373.
KPMG Econtech Home