Economy to go backwards in 2009/10

The Australian economy is not expected to record any growth until 2010/11 as the
"inevitable" consequence of the global recession crimps business investment, weakens
demand for exports and inhibits household consumption, the federal budget papers
show.
Treasury expects no gross domestic product (GDP) growth in 2008/09, before the
economy contracts by 0.5 per cent in 2009/10, in year average terms.
The first full year of expansion is not due to take place until 2010/11, when the
GDP is forecast to rise by 2.25 per cent.
"The magnitude and speed of transmission of the global recession means that a
recession in Australia has become inevitable," the budget papers for 2009/10
released on Tuesday said.
"The effects of the global financial crisis have surged through all advanced
economies, destroying wealth, sapping confidence, and leading to a collapse in
global trade."
Treasurer Wayne Swan said federal government actions to support the economy during
the global financial crisis so far had prevented an even sharper contraction in
growth and were expected to "support" up to 210,000 existing jobs.
"The government believes in those 210,000 Australians and we won't cut them loose,"
Mr Swan said in his budget speech to parliament.
"We understand the dignity of work, and the cost of being without it."
Business investment is also expected to fall sharply in 2009/10, by a forecast 18.5
per cent, while goods and services exports are tipped to fall by four per cent.
Household consumption is expected to backpedal by 0.25 per cent, which the budget
papers described as a "mild fall compared with many other advanced economies".
Mr Swan said the measures announced in the 2009/10 budget - including spending on
infrastructure and tax breaks for small businesses - had put a cushion under the
economy when it "is expected to be at its weakest".
"In the absence of our efforts, the contraction would be four times bigger," he said.
"And our economy would be 2.75 per cent smaller in 2009/10 and 1.5 per cent smaller
in 2010/11."
Treasury also expects the unemployment rate to reach 8.25 per cent by the June
quarter of 2010, before peaking at 8.5 per cent in "late 2010".
The nation's unemployment rate was 5.4 per cent in April this year, according to
figures from the Australian Bureau of Statistics. It had reached a 33-year low of
3.9 per cent in February 2008.
Employment growth was forecast to contract 1.5 per cent in the year to the June
quarter of 2010 before growing by 0.5 per cent the year after.
Since the mid-1990s, federal budgets have been based on forecasts for the current
and upcoming financial year, with projections for subsequent years based on an
assumption of long-run trend growth.
But this year's budget assumes the economy will grow below trend in 2010/11, with
projections for subsequent years based on above trend growth as the nation emerges
from recession.
"This approach is also in line with that taken in budgets in the early 1990s, when
above-trend rates of growth were assumed as the economy recovered from recession,"
the budget paper said.
The budget papers said the previous practice was "not appropriate in the current
circumstances".
The government said there were considerable risks surrounding its forecasts, given
it was a time of "significant upheaval".
"The global economy remains fragile and could deteriorate further, with flow-on
consequences for the Australian economy," the budget papers said.
Meanwhile, Treasury expects inflation to continue to moderate, with both the
headline and underlying consumer price index to slow to 1.75 per cent in the year to
the June quarter of 2010.