Gillard says Australia on its way to a surplus
Source: Bloomberg News |
April 15, 2013, Monday
|
Print Edition
Print Edition
AUSTRALIAN Prime Minister Julia Gillard says her government's "tight" fiscal stance leaves room for the central bank to cut interest rates as manufacturers try to cope with sustained currency strength.
"I don't think our current fiscal position in any way reduces the scope" for the Reserve Bank of Australia to lower borrowing costs, Gillard said in Sydney, the nation's business capital. "We are keeping a limit on expenditure" and will move to a surplus over time, she said ahead of the May 14 annual budget release.
The government will champion initiatives to help industrial companies strengthen innovation and productivity in the face of a "new normal" strong exchange rate, the prime minister said. While Australia's so-called two-speed economy has left the mining sector propelling growth, in time a swelling Asian middle class will allow the nation to diversify, she said.
Dollar appreciation
"Our success as a resources economy, as an economy that's emerged from the global financial crisis strong, has meant that our Australian dollar has been very high," Gillard said after meeting business leaders advising the government on its 2014 presidency of the Group of 20 nations. "This is the new normal and it's putting pressure on businesses in areas like manufacturing."
Australia's dollar has appreciated 75 percent against its US counterpart since late October 2008.
A government report has showed the nation's jobless rate unexpectedly rose to a three-year high of 5.6 percent. The report, showing that employers cut payrolls by 36,100 in March after a 74,000 increase in February, came days after General Motors's Holden division said it will cut about 500 positions in Australia. Holden said the strong local dollar and currency devaluations in competing markets had made operations in the nation among the most expensive in the world.
Gillard said "inevitably there's volatility in monthly figures," when asked about the employment data. "But we've created 50,000 jobs since the start of this year, we've created 100,000 in the last 12 months, we've created almost 900,000 in the time since we've been in office during the worst global economic circumstances since the Great Depression."
Traders priced in a 54 percent chance the RBA will lower the benchmark rate to a record low of 2.75 percent in August, according to swaps data compiled by Bloomberg News. Earlier, there was a less than 50 percent chance of a reduction.
Tightened spending
Australia's exchange rate, a deceleration in resource investment from a peak this year, and tightening of government spending are likely to hurt growth in 2013, Christopher Kent, the central bank assistant governor told the Bloomberg Australia Economic Summit last week. The RBA in February predicted a "below trend" increase of 2.5 percent for gross domestic product in 2013, down from an estimate of around 2.75 percent in November.
The national budget fell further behind projections in February, taking the deficit to A$23.6 billion (US$24.9 billion) for the first eight months of the financial year, according to Treasury figures. The gap in the financial year to February 28 was A$5.7 billion wider than was projected in the government's Mid-Year Economic and Fiscal Outlook, primarily due to lower tax revenue and higher personal benefit payments, the statement said.
In its October mid-year review, the government forecast a budget surplus of A$1.08 billion in the 12 months to the end of June. It recorded a A$44 billion deficit last fiscal year.
Gillard is campaigning to reverse a gap of 10 percentage points in opinion polls behind a political opposition led by Tony Abbott in the run-up to national elections on September 14. Abbott has attacked the government over busting its budget pledge, with his Shadow Treasurer Joe Hockey predicting the deficit will be worse than anticipated.
Education and training
"We're now getting less revenue per unit of GDP than any time since the nation emerged in the 1990s from a recession," Gillard said. Policymakers will nonetheless maintain focus on education and training programs key to diversifying the economy, she said.
With the strong currency, "if you did nothing and just let it do its work in the economy, you could wake up in a few years' time with an economy that had whole segments of it hollowed out."
Gillard said China's urbanization will continue to drive Australian exports. As the Asian nation's middle class grows, her country stands to benefit from demand for non-resource exports including processed foods, tourism, and financial and legal services.
Direct trading between the yuan and Australia's dollar reached A$250 million on Wednesday, its first day, Gillard said after returning from a visit to China.
"For most of my life people have thought about our location in the world as a net disadvantage because we were remote from the moneyed people of Europe and even from the US," Gillard said. "Now, our location in the world is a huge advantage as the world's biggest middle class takes shape."
"I don't think our current fiscal position in any way reduces the scope" for the Reserve Bank of Australia to lower borrowing costs, Gillard said in Sydney, the nation's business capital. "We are keeping a limit on expenditure" and will move to a surplus over time, she said ahead of the May 14 annual budget release.
The government will champion initiatives to help industrial companies strengthen innovation and productivity in the face of a "new normal" strong exchange rate, the prime minister said. While Australia's so-called two-speed economy has left the mining sector propelling growth, in time a swelling Asian middle class will allow the nation to diversify, she said.
Dollar appreciation
"Our success as a resources economy, as an economy that's emerged from the global financial crisis strong, has meant that our Australian dollar has been very high," Gillard said after meeting business leaders advising the government on its 2014 presidency of the Group of 20 nations. "This is the new normal and it's putting pressure on businesses in areas like manufacturing."
Australia's dollar has appreciated 75 percent against its US counterpart since late October 2008.
A government report has showed the nation's jobless rate unexpectedly rose to a three-year high of 5.6 percent. The report, showing that employers cut payrolls by 36,100 in March after a 74,000 increase in February, came days after General Motors's Holden division said it will cut about 500 positions in Australia. Holden said the strong local dollar and currency devaluations in competing markets had made operations in the nation among the most expensive in the world.
Gillard said "inevitably there's volatility in monthly figures," when asked about the employment data. "But we've created 50,000 jobs since the start of this year, we've created 100,000 in the last 12 months, we've created almost 900,000 in the time since we've been in office during the worst global economic circumstances since the Great Depression."
Traders priced in a 54 percent chance the RBA will lower the benchmark rate to a record low of 2.75 percent in August, according to swaps data compiled by Bloomberg News. Earlier, there was a less than 50 percent chance of a reduction.
Tightened spending
Australia's exchange rate, a deceleration in resource investment from a peak this year, and tightening of government spending are likely to hurt growth in 2013, Christopher Kent, the central bank assistant governor told the Bloomberg Australia Economic Summit last week. The RBA in February predicted a "below trend" increase of 2.5 percent for gross domestic product in 2013, down from an estimate of around 2.75 percent in November.
The national budget fell further behind projections in February, taking the deficit to A$23.6 billion (US$24.9 billion) for the first eight months of the financial year, according to Treasury figures. The gap in the financial year to February 28 was A$5.7 billion wider than was projected in the government's Mid-Year Economic and Fiscal Outlook, primarily due to lower tax revenue and higher personal benefit payments, the statement said.
In its October mid-year review, the government forecast a budget surplus of A$1.08 billion in the 12 months to the end of June. It recorded a A$44 billion deficit last fiscal year.
Gillard is campaigning to reverse a gap of 10 percentage points in opinion polls behind a political opposition led by Tony Abbott in the run-up to national elections on September 14. Abbott has attacked the government over busting its budget pledge, with his Shadow Treasurer Joe Hockey predicting the deficit will be worse than anticipated.
Education and training
"We're now getting less revenue per unit of GDP than any time since the nation emerged in the 1990s from a recession," Gillard said. Policymakers will nonetheless maintain focus on education and training programs key to diversifying the economy, she said.
With the strong currency, "if you did nothing and just let it do its work in the economy, you could wake up in a few years' time with an economy that had whole segments of it hollowed out."
Gillard said China's urbanization will continue to drive Australian exports. As the Asian nation's middle class grows, her country stands to benefit from demand for non-resource exports including processed foods, tourism, and financial and legal services.
Direct trading between the yuan and Australia's dollar reached A$250 million on Wednesday, its first day, Gillard said after returning from a visit to China.
"For most of my life people have thought about our location in the world as a net disadvantage because we were remote from the moneyed people of Europe and even from the US," Gillard said. "Now, our location in the world is a huge advantage as the world's biggest middle class takes shape."
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