Australia basks in rosy growth forecast

By GREG ANSLEY

Australia's economic summer will continue well into next year with stronger than expected world growth pushing the nation's own performance higher than predicted in last May's Budget.

With this comes the further warmth of falling unemployment - predicted to slide to a 10-year low of 6.75 per cent by the middle of next year - and continuing low inflation.

Business investment has bounced back faster and stronger than expected - despite concerns over Y2K, tax changes and the Olympics - rising 15 per cent above the June quarter to within 4 per cent of the 1998 September quarter.

Treasurer Peter Costello made the glowing economic predictions yesterday in the Government's midyear Budget review, released just two days after Prime Minister John Howard announced his special tax on the affluent to finance operations in Timor and stave off a budget deficit.

The deficit and the nation's deteriorating balance of payments situation are the dark clouds.

The underlying budget surplus for 1999-2000 is now predicted to fall from the May estimate of $A5.2 billion ($6.43 billion) to $A3.4 billion.

In 2000-01 the forecast surplus will contract even further, from a predicted $3.1 billion to just $A500 million, pruned back by the twin effects of the Timor deployment and the concessions on food exemptions made to the Democrats in return for next year's GST package.

The 1999-2000 current account deficit is also expected to rise from the May estimate of $A32 billion, or 5.25 per cent of GDP, to $A33.5 billion (5.5 per cent).

Headline inflation is expected to surge to 5.5 per cent with a one-off 2.5 per cent impact from the GST, although an increase in predicted underlying inflation from 2 per cent to 2.5 per cent will remain within the Reserve Bank's target range.

The economy is now predicted to grow at 3.5 per cent in 1999-2000, compared with May's forecast of 3 per cent, and by 3.75 per cent in 2000-01. Employment growth is expected to increase from 1.75 per cent to 2.25 per cent, with the jobless rate slipping below 7 per cent.