Economic Indicators

(a) All recent data subject to revision; (b) IMF forecast; [c] PPP is purchasing power parity; (d) Total may not add due to rounding; (e) Merchandise trade; (f) Excludes imports of aircraft after September 2008

Source: Australian Govt, Dept of Foreign Affairs and Trade

Economic Forecast (2008-09)

The Australian economy slowed significantly during the global downturn, but weathered the crisis better than most other advanced economies, supported by timely and substantial policy stimulus. The economy grew by 1.4 per cent during 2009-a full 4½ percentage points above the advanced economy average. Without fiscal stimulus, it is estimated that the economy would have contracted by 0.7 per cent in 2009. The labour market held up remarkably well with Australia having one of the lowest unemployment rates among the advanced economies.

Australia's real GDP is forecast to grow by 3¼ per cent in 2010-11 and 4 per cent in 2011-12. The main contributors to economic growth are expected to be household consumption, business investment and exports. Public sector demand will ease as the fiscal stimulus is withdrawn.

Household consumption is expected to continue to recover. A strong labour market, sustained improvements in consumer confidence and higher asset prices are expected to see household consumption grow by 3½ per cent in 2010-11 and 4 per cent in 2011-12.

Dwelling investment is forecast to grow by a strong 7½ per cent in 2010-11. There is currently a significant pipeline of dwelling construction work to be completed. Strong population growth and low vacancy rates should continue to support activity in the dwelling sector, although this is likely to be tempered by higher mortgage interest rates.

Business investment is expected to rise significantly in both 2010-11 and 2011-12. The Small Business and General Business Tax Break has supported machinery and equipment investment in recent times, but strong business confidence and easing credit conditions are expected to support a broader-based recovery, recent interest rate increases notwithstanding. A surge in new mining investment is expected as a number of large projects come on line. Non-residential building investment is expected to remain subdued before recovering in response to the broader economic recovery.

Exports are forecast to grow solidly in both 2010-11 and 2011-12, as the world economy continues to strengthen and new resources production comes on line. The recovery in exports is expected to be broad-based, but with particular strength in non-rural commodity exports.

Imports are expected to increase strongly in both 2010-11 and 2011-12, reflecting rising domestic demand and a strong Australian dollar. The growth in imports is expected to be broadly based, although the contribution of capital goods imports — driven by the capital expenditure of major mining projects — is expected to be substantial.

The terms of trade are forecast to rise by 14¼ per cent in 2010-11 to their highest level in 60 years, largely due to strong price rises for Australia's iron ore and coal exports, driven by a recovery in global demand. Commodity prices are expected to moderate somewhat in 2011-12, but still remain at high levels. High commodity prices have caused a substantial supply response and this will increasingly weigh on prices as supply comes on stream. The medium-term projections assume that the terms of trade will fall over the medium term, as world supply increases.

The unemployment rate is expected to continue to fall, reaching 5 per cent by the end of 2010-11 and 4¾ per cent by the end of 2011-12, around its full employment rate. Employment is expected to grow by 2¼ per cent through the year to the June quarter 2011 and 2 per cent through the year to the June quarter 2012, absorbing strong growth in the labour force associated with rapid growth in the working age population and an expected increase in the participation rate.

Wages growth is expected to recover after growing close to its slowest rate on record through 2009. The Wage Price Index is expected to grow by 3¾ per cent through the year to the June quarter 2011 and 4 per cent through the year to the June quarter 2012.

Underlying inflation is expected to stabilise at around 2½ per cent through 2010-11 and 2011-12. Headline inflation is expected to be 3¼ per cent through the year to the June quarter 2010 and 2½ per cent through the year to the June quarter of both 2011 and 2012.

Nominal GDP is forecast to grow by 8½ per cent in 2010-11. This strength reflects growth in the GDP deflator of 5 per cent, largely driven by substantial increases in the terms of trade.

Source:Australian Government

Updated: July 2010