Australia Boosts Growth Forecast

CANBERRA ~ Treasurer Peter Costello has boosted Australia’s 2007-08 economic growth forecast to 3.75 percent, up from 2.5 in 2006-07, as a major drought lets up and business investment and exports boom.

Costello, delivering his 12th budget as the government lags in polls ahead of an election late this year, expressed confidence in the nation’s fundamentals, upping his gross domestic product growth and inflation outlooks.

“Australia is now enjoying the longest economic expansion in its history,” Costello told parliament on Tuesday as he unveiled his spending plan that many analysts said was aimed at sweetening disaffected voters ahead of the general election.

Real GDP growth in 2007-08 will be bolstered by a partial recovery from the country’s worst drought in a century, as well as factors that include strong growth in consumption and business investment and expanding export growth.

Economic growth is projected at 2.5 percent this year, below calendar the 2.8-percent growth for 2006 reported by the Australian Bureau of Statistics for the year ending in December.

The government’s much-touted 2007-2008 budget provided for a cash surplus of AUS$10.6 billion (US$8.72 billion) – its 10th successive surplus – which was almost $1 billion better than its last estimate, in December.

Costello said the surplus would further fuel the country’s economic growth by reducing capacity constraints and pledged boosted surpluses over the following two years.

Canberra’s conservative government is also expecting a surplus of $12.7 billion in 2008-09 and another of $13.8 billion in 2009-10, before the figure dips to $12.4 billion in 2010-11.

Government revenue for 2007-08 is expected to rise to $246.8 billion, from $235.5 billion this year.

This year’s cash balance is projected at $13.6 billion, or 1.3 percent of GDP.

Inflation forecasts are also down, according to Costello, with the consumer price index seen at 2.5 percent for 2007-08, down from 2.75 percent forecast for this year.

The wage price index is seen flat at 4.25 percent and the jobless rate is rising to five percent.

The drought battering the driest continent on earth is expected to chip into economic growth during the current financial year and will boost risk to the government’s 2007-08 forecast if it does not ease.

“The forecast strength in the economy in 2007-08 partly relies on the normal budget assumption of average seasonal conditions,” the government has said.

The expected partial recovery from the drought is forecast to add half a percentage point to GDP growth.

But business investment, at its highest level as a percentage of GDP in 32 years, is expected to increase by four percent in 2006-07 and by a further 7.5 percent in 2007/08, as the mining and construction sectors boom.

The mining sector alone has invested about $55 billion to expand production, with the investments expected to begin to flow through to mining exports in the year as countries such as china snap up minerals.

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