Swan: growth first, then stimulus cuts

Wayne Swan. Photo / Mark Mitchell

CANBERRA - Stimulus package measures will not be wound back until Australia's economic growth level returns to where it was before the global financial crisis hit, Treasurer Wayne Swan says.

The Group of 20 (G20) finance ministers said, after their meeting in London at the weekend, that expansionary monetary and fiscal policies would continue until "the recovery is secured".

Australia appears to have avoided a technical recession but Swan said the stimulus would not be trimmed until the nation's economic growth level had returned to a trend level of three per cent.

"We've got in place a medium-term fiscal strategy so that when growth returns to trend ... we will be applying that expenditure cut," he told ABC Television yesterday.

Australia's annual economic growth pace has not been above 3 per cent since the March quarter of 2008.

That was six months before the collapse of United States financial services firm Lehman Brothers triggered global financial panic.

G20 finance ministers discussed fiscal stimulus exit strategies and how they should be co-ordinated, Swan said.

"Finance ministers were of the view that now is not the time."

The Treasurer said his counterparts agreed that stimulus measures would only be wound back if it appeared there was a "sustained return of demand, and particularly private demand in the global economy".

Global growth would not be driven by US consumers in the way it was before the global recession, Swan said.

He added that there would be new sources of demand after the financial crisis.

Asked if Australia would be part of a co-ordinated exit strategy, the Treasurer reiterated his view that growth needed to return to a trend level of 3 per cent.

"But we have a very robust position here: we are in a better position than many of those other countries," he said.

In the May Budget, Treasury forecast that Australia's economic growth would shrink by a half per cent during this financial year and not return to an above-trend level until 2011-12, when the economy is expected to surge by 4.5 per cent. AAP