(RTTNews) - Monday, the Australian government raised the economy’s growth outlook for 2009 and 2010 fiscal years from its earlier forecasts in May. At the same time, the government projects the jobless rate to be lower and deficit to be smaller.

In its Mid-Year Economic and Fiscal Outlook report, the Treasury said the economy would grow 1.5% in 2009-10, reversing its earlier forecast for a 0.5% contraction. For the next year, the government forecasts the economy to grow 2.75%, faster than 2.25% growth expected previously.

The economy is still expected to operate below full capacity, and unemployment expected to rise. However, the Treasury improved its forecasts for the jobless rate. It expects the jobless rate to peak at 6.75% in the June quarter 2010, but to come in lower than the 8.5% expected in May. In September, the rate stood at 5.7%. Moreover, business and private investments are forecast to contract this year.

According to the Treasury, the higher growth outlook has also raised the projections for tax revenues, although they are expected to be A$170 billion lower than the estimates made in 2008-09.

The cash deficit in 2009-10 is to be largely unchanged from May estimates at A$57.7 billion or 4.7% of GDP. The Treasury expects the deficit to fall to 3.6% of GDP in 2010-11. It expects a further decline to 2.3% in 2011-12 and then to 1.1% a year after. The government expects to see a fiscal surplus by 2015-16, largely unchanged from its estimates in May.

Net debt is forecast to peak at 10% of GDP in 2013-14, lower than 13.8% forecast seen in May, and represents an improvement in net debt of around A$50 billion compared to May forecasts.

The government’s strategy to bring the balance back to a surplus is to maintain the debt levels below all other advanced countries. The Treasury expects the net debt for advanced countries to reach 93% of GDP by 2014 and their budget deficits to peak at 10% of GDP in 2009.

Meanwhile, the government said the financial recession still had a marked effect on the economy, and challenges remain. “If not for the direct impact of the fiscal stimulus, Australia would have experienced a technical recession and the economy would have gone without growth for two consecutive years, in both 2008-09 and 2009-10″, it said.

The Treasury said it was appropriate to withdraw the stimulus only gradually, giving time for the private sector to recover. The planned withdrawl of stimulus would start detracting from GDP in the March quarter of 2010. As a result, the real spending is forecast to contract in 2010-11, for the first time in 20 years.

The effects of the stimulus measures helped cushion some of the destruction in skills and capital. This was reflected in a smaller fall in the national output, with the real GDP being 0.5% higher in the medium-term projections than that seen in the budget in May.

Economists at Westpac Bank wrote in a note on Monday that they concur with revised 2009-10 growth estimates of the government, but expects the 2010-11 growth to be considerably higher at 3.7%. “We are surprised that the Government’s fiscal forecasts have not been upgraded for 2009/10 despite their increase in forecast nominal income growth of 2.75ppts and the much improved outlook for the unemployment rate”, the economists pointed out.

“If the Government has been too conservative with the forecasts then scope will exist for a further upgrade in the fiscal outlook at the time of the next Budget”, Westpac added.

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Posted in Categories: Australia, Economy, Forex, Releases.

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