Economic Indicators

(a) all recent data subject to revision;
(b) IMF/EIU forecast.

Source:Australian Govt, Dept of Foreign Affairs and Trade

Economic Forecast ( 2004-05)


The initial forecast for 2004-05 is for economic growth of around 3½ per cent. Domestic demand growth is expected to be solid, although a little weaker than in 2003-04, reflecting more moderate growth in household consumption and declines in medium-density dwelling investment and engineering construction. The external sector is forecast to make a zero contribution to growth, a much better outcome than the large subtractions in recent years, with exports forecast to pick up in line with the ongoing recovery in world demand and a further recovery in farm production.

Household consumption is expected to grow solidly in 2004-05, broadly in line with household income growth, although the pace of growth is expected to ease from the above-trend rates of recent years. The pace of wealth accumulation is expected to slow, in line with an assumed slowdown in the rate of increase of house prices, and household income growth should moderate a little.

Dwelling investment is forecast to ease in 2004-05, with continued growth in both detached housing and renovation work expected to be offset by a long-anticipated decline in medium-density housing activity.

Business investment growth is forecast to be solid in 2004-05, with continued growth in plant and equipment investment and non-residential construction. However, engineering construction activity is likely to ease from the high levels reached in 2003-04, as work on projects currently underway is gradually completed.

Exports are expected to pick-up further in 2004-05, supported by the ongoing recovery in both global demand and farm production and strong growth in non-rural commodity exports, as new production capacity in the mining sector starts to come on line, following the recent boom in engineering construction. Import growth is expected to moderate in line with the slowing pace of domestic demand growth.

The trade forecasts imply that the external sector will not contribute to GDP growth in 2004-05, an improvement from the 3 percentage point subtraction in 2002-03 and the expected 1½ percentage point subtraction forecast for 2003-04. The terms of trade should increase moderately and the current account deficit is expected to narrow.
Employment growth is forecast to be 1¾ per cent in 2004-05, in line with firmer growth in non-farm GDP. The unemployment rate is forecast to remain at around, or a little below, 5¾ per cent in 2004-05. Wages growth should remain firm, but slow a little in 2004-05, in line with solid, albeit easing, employment growth over the forecast horizon and a broadly stable unemployment rate.

Inflation is forecast to fall to 2 per cent through the year to June 2005, consistent with the expected slight easing in wages growth, further anticipated falls in import prices and moderating domestic demand pressures. The scheduled reduction in motor vehicle and textile, clothing and footwear tariffs from 1 January 2005 should also put downward pressure on inflation in 2004-05. If the recent exchange rate appreciation is sustained, and in the absence of any positive shocks, it is likely that inflation will fall below 2 per cent, possibly as low as 1¾ per cent, in the year to June 2005.