Fed: Aust economic party is over: Access

AAP General News (Australia)
04-04-2005
Fed: Aust economic party is over: Access

Eds: Embargoed to 0001 AEST Monday, April 4



By Shane Wright, Economics Correspondent

CANBERRA, April 4 AAP - The Australian economic party was over and might even end up
in a recession, an economic forecaster has warned.

Access Economics, in its latest business outlook, today warned a combination of bad
policy and bad luck may be enough to tip Australia into recession for the first time since
the early 1990s.

The forecaster called for courageous government policies, such as raising the age at
which super and pensions can be accessed, toughening eligibility for the disability pension
and championing genuine workplace relations reform.

Access Economics said the March hike in interest rates by the Reserve Bank on top of
an already slowing economy, combined with a lack of policy development by federal and
state governments, would be enough to stall the economy.

With the Reserve a 50-50 chance to lift rates again this month - in a bid to head off
wages-led inflation - Access said even if the country avoided a recession the days of
stellar economic growth were over.

"Australia's growth party is over," Access said.

"There is therefore a risk that, in trying to slow the economy, the Reserve turns 2005
output growth into roadkill.

"If so, then output growth would continue to crawl through 2005, unemployment would
stop falling (and may well increase), housing prices would resume falling and the Reserve
would eventually reverse.

"A pause in recent growth via a recession may therefore be very unlikely, but it cannot
be completely ruled out."

Although critical of the Reserve Bank and its rates strategy, Access said much of the
blame for the economic problems now facing the country had to be sheeted home to federal
and state governments.

It said the supply side of the economy was hitting a series of walls that could only
be pulled aside by policies in areas such as infrastructure and skills development.

"Governments must encourage working by cutting effective marginal tax rates," it said.

"And governments could also do the sorts of things everybody agrees need doing but
no-one has the courage to do, such as raising the age at which super and pensions can
be accessed, toughening eligibility for the disability pension and championing genuine
workplace relations reform."

Access warned the current account deficit, now over seven per cent of GDP, would take
some time to fall.

While the global economy would continue to perform strongly, this was mostly due to
just two markets - China and the United States.

But it said a global economic bust was a chance because of the drag inflicted by Japan
and Europe, and the failure of the US to tackle its current account deficit.

And although Australian commodity exporters were doing well from strong demand out
of China, other competitor nations - such as Brazil - were bringing new mines into operation.

This would eventually push prices for such commodities as iron ore down, hitting Australian
exports.

Access said it expects GDP this financial year to fall to 2.0 per cent (from 4.1 per
cent), and work its way back up to 2.8 per cent in 2005-06.

It is tipping unemployment to stay at 5.1 per cent before lifting to 5.8 per cent in
2006-07, while average weekly earnings should grow 4.2 per cent next financial year.

Private consumption is tipped to fall from 3.9 per cent this financial year to 2.5
per cent in 2006-07.

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KEYWORD: ECONOMY (EMBARGOED)

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