Economic gloom still likely, says Swan

Federal Treasurer Wayne Swan has warned Australia could still face negative economic
growth as the impact of the global recession washes through the economy.
In a ministerial statement on the return of parliament after the winter break, Mr
Swan cautioned there was still some way to go before there could be confidence in a
sustainable economic recovery, and that unemployment would continue to rise.
"Many could still lose their jobs or will enter the labour market but not be able to
find work as a result of the global recession," Mr Swan told parliament.
"Unemployment will rise."
Mr Swan's gloomy assessment of the economy came as new business surveys continued to
point to improving confidence and trading conditions.
The National Australia Bank (NAB) monthly survey showed business confidence rose to
its highest level since August 2007, and is "now approaching long run average
levels".
Its business conditions index also turned positive for the first time since the
middle of 2008.
NAB chief economist Alan Oster said the July results were encouraging, and "clearly
points to an accelerating growth momentum" for the domestic economy.
The latest Dun and Bradstreet (D&B) business expectations survey also released on
Tuesday found measures for profits and sales recorded their largest quarterly jump
since the survey began in 1988.
D&B chief executive Christine Christian said the sharp rise indicated that many
company executives believed the worst of the economic slowdown was behind them.
However, she warned against complacency, given the fragile nature of the recovery
and difficult trading conditions, saying "the road to recovery will continue to be
challenging".
Mr Swan said recent positive data, including these latest business surveys, will
have "obvious implications" for the government's economic forecasts, which will be
updated in the Mid Year Economic and Fiscal Outlook due later in the year.
But he said in coming months and years, there would inevitably be positive and
negative data on the economy.
"This includes the possibility of future negative quarters of growth," he said.
"Unemployment will continue to rise for sometime, even after the recovery gets
underway."
He said it was also inevitable that global interest rates would rise from their
current historical lows and, as the Reserve Bank of Australia (RBA) had indicated,
domestic rates would rise as well.
But he said the government's measures had helped Australia to withstand for now the
worst global recession in 75 years.
Recent upward revisions to forecasts by the RBA and the International Monetary Fund
are predicated on the government's stimulus being "fully implemented".
"That's why, to those who suggest we should wind back stimulus, I say that would be
pulling the rug out from under the recovery," Mr Swan said.
However, opposition treasury spokesman Joe Hockey said the RBA was warning there was
a danger of maintaining very stimulatory measures.
The RBA upgraded its growth forecasts in last week's quarterly monetary policy
statement, but took the unusual step of assuming a return to a more normal level of
interest rates in its estimates.
"Why would the Reserve Bank have felt the need to explicitly signal that it will
unwind its very stimulatory monetary policy settings over the forecast period?" Mr
Hockey said.
"The answer may be that it believes the economy no longer needs that degree of
support."
He said the central bank might also feel there were dangers in continuing to run
such an expansion policy stance that was conceived and implemented when the outlook
was far darker.
"The government is not heeding the Reserve Bank's warnings," Mr Hockey said.