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CANBERRA - Economic growth in Australia could struggle to reach three per cent over the next decade, well short of expectations, new research has found.
But in some good news for the government, the Australian Industry Group (Ai Group) report also found that the unemployment rate can fall further without necessarily pushing up inflation.
"In contrast to some predictions that Australia has already reached the point where unemployment cannot fall further without triggering inflationary pressures, our analysis is more circumspect," the Ai Group's How Fast Can Australia Grow? report says.
"We find that there is further scope to test our ability to reduce unemployment and underemployment before we see wage pressures fuelling inflation."
But the report, the third to be produced since 1995, estimates that economic growth will slow to 2.9 per cent a year to 2017, down from the 3.2 per cent annual average from 2001 to 2007 and the 4.2 per cent recorded between 1996 and 2000.
It blames the slower pace on dropping productivity and the skills shortage, and warns that immigration is critical to bring in more workers.
"While a consistent pace of close to three per cent is not to be sneezed at, for a country that around a decade ago was dubbed 'the miracle economy' it is an outlook that will fall well short of expectations," Ai Group chief executive Heather Ridout said.
With the Reserve Bank widely expected to lift interest rates this week and underlying inflation at a 16-year high, Treasurer Wayne Swan has conceded that the economy may have to slow down to rein in rising costs of living.
But he rejected suggestions that unemployment would inevitably rise from its 33-year low of 4.1 per cent.
"The economy may slow a lot but I have no advice from Treasury that suggests unemployment may increase substantially," Mr Swan said.
"We still have strong domestic investment, we still have strong employment creation.
"What we want to do in our priority is to keep inflation down and have job creation and job growth as strong as possible while we bring down that rate of inflation to make sure that growth in the long term is sustainable."
Prime Minister Kevin Rudd vowed to keep the economy on track but admitted it would be tough.
"We believe we can get that balance right," Mr Rudd said.
"It will be tough. But we are confident we can do it."
Finance Minister Lindsay Tanner has already outlined A$643 million ($758.3 million) in savings from scrapping Howard government promises, and is looking for a further A$3 to A$4 billion to slash from the May budget.
Opposition Leader Brendan Nelson warned that the cuts must not penalise states outside booming Queensland and Western Australia.
"Mr Rudd and Mr Swan need to guarantee the Australian community that, as a result of their changes to workplace relations laws, no Australian loses their job," Dr Nelson told reporters in Sydney.
- AAP
