Budget predicts Australia's economy return to surplus in 2012/13

08:33, May 12, 2010      

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In the Australian federal budget for 2010/11 revealed on Tuesday, Treasury forecast the underlying cash balance to return to surplus, of 1 billion dollars (0.89 billion U.S. dollars) in 2012/13, three years earlier than predicted a year ago.

For financial year 2010/11, the underlying cash deficit has been expected to be 40.8 billion dollars (36.7 billion U.S. dollars), or 2.9 percent of gross domestic product (GDP), an improvement on the 57.6 billion dollars (51.76 billion U.S. dollars) forecast in May 2009.

Real GDP has been forecast to expand by 3.25 percent in 2010/11 before growing by 4.0 percent in 2011/12 compared to 2.25 percent and 4.5 percent respectively a year ago.

"The Australian economy has far outperformed the expectations of a year ago, having emerged from the global recession as the strongest performing economy in the developed world," Treasurer Wayne Swan said in budget speech on Tuesday night.

"This time last year we expected our economy to enter a recession, with GDP forecast to contract by 0.5 percent in 2009/10.

"Instead the budget estimates that GDP will grow by two percent. "

Swan has acknowledged the hit to the fiscal position from the global economic downturn with total tax receipts expected to be 110 billion dollars (98.9 billion U.S. dollars) lower in the four years to 2012/13 compared with pre-global financial crisis estimates.

The underlying cash deficit is predicted to be 57.1 billion dollars (51.34 billion U.S. dollars) for 2009/10, in line with previous forecasts.

"Accumulated losses will take some time to work their way through the system and this will delay a full recovery in tax receipts," the budget papers said.

Australian job seekers have benefited from the improvement in the economy with the labor market expected to tighten in the years ahead.

Last May Treasury forecast the unemployment rate to a reach a high of 8.5 percent in late 2010.

The jobless rate has peaked at 5.8 percent between June and October 2009, according to Australian Bureau of Statistics data.

"Best of all, the unemployment rate is expected to fall further from 5.3 percent today to 4.75 percent by mid-2012, around the level consistent with full employment," Swan said.

A rebound in Asian economies with their appetite for mineral resources has helped lift the prices for Australia's key commodity exports, coal and iron ore, and boost the nation's terms of trade.

Coal and iron ore constitute around 30 percent of Australia's exports.

The government has forecast the terms of trade, the ratio of export prices to import prices, to rebound by 25 percent by mid- 2010 and inject 30 billion dollars (26.97 billion U.S. dollars) into the economy.

"The global recovery is generating strong demand for non-rural commodities, particularly from Asia, resulting in higher prices," the papers said.

"The resulting boost to domestic incomes is expected to spur business investment and household consumption."



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