Aussie economy defies gravity

By Greg Ansley


CANBERRA - The Australian economy continues to roar ahead of its crisis-stricken neighbours, gathering pace over the past three months despite grim trading prospects for its key export commodities.

The nation's defiant buoyancy was confirmed yesterday in two new surveys that softened last week's news of a record $A1.5 billion February trade deficit, although the current account position is expected to worsen considerably throughout the year and push the Australian dollar back below 60USc.

The National Australia Bank's March quarter business survey indicated non-farm business sector growth consistent with 4.5 per cent over the previous 12 months, with strengthening employment growth, rising business confidence, capacity utilisation and stocks, and continued high levels of profitability.

Elsewhere, the ANZ Bank's March job advertisement survey showed continued strength - exceeding December as the highest total in a decade - raising expectations for actual job creation over the next three months.

"In brief, the Australian economy continues to outperform just about all of our major trding partners, with no apparent slowing in its underlying momentum yet," NAB's chief economist, Alan Oster, said.

NAB said domestic strength was being driven by construction - especially in Melbourne and Sydney - retailing, business services and communications.

One key driver was Y2K spending by the non-farm sector which, excluding telecommunications, banking and small business, was expected to reach about $A7 billion.

In total, Australia's non-farm Y2K bill was conservatively estimated at $A10 billion, or about 1.75 per cent of gross domestic product.

According to the NAB survey, significantly less than half of this has so far been spent.

Australian business had also continued to scale back its expectations of the impact from Asia which, with Y2K spending and high levels of forward orders in construction, could delay the nation's widely forecast slowdown.

However, with forward investment projections for the next 12 months heavily pruned in mining, construction and, to a lesser extent, manufacturing, NAB said the real questions on a slowdown were "when", and "to what extent".

Australia's trading position is also becoming more parlous despite continued strength in the United States and signs of a bottoming of the economic trough in Korea, Thailand and Malaysia.

With private sector activity falling in Japan, Europe slowing more sharply than expected and signs of weaker growth in China and Taiwan, growth in major OECD economies was expected to reach only about 1.5 per cent this year, and just 1 per cent among Australia's big trading partners.

NAB said in the present financial year and in 1999-2000 Australia's terms of trade could decline by 10 per cent.

Linked to relatively strong domestic demand, this would inevitably cause a further deterioration of the current account deficit - rising from an average of 5.75 per cent of GDP in 1998-99 to more than 6 per cent this calendar year.

NAB said that this, together with weak commodity prices, would push the Australian dollar to below 60USc again over the next six months before a slow recovery began.