By Wilson da Silva
SYDNEY – Australia’s economic growth is likely to lead the developed world at an annual four per cent by late 1993, starting a new run of prosperity for the nation, central bank governor Bernie Fraser said on Wednesday.
Speaking to economists at a business lunch, Fraser backed recent government comments that growth and job creation were the priorities, and that the A$15.9 billion (US$11.2 billion) government budget deficit was not a burning priority.
“With the economy growing only slowly, and with plenty of slack in evidence, now is not the time to implement a vigorous deficit reduction campaign,” Fraser said.
“But while the present degree of fiscal stimulus might be broadly appropriate, we do need to be able to pull back as the economy recovers,” he said.
“The fiscal task is not to withdraw immediately the short-term stimulus but to address the longer-term problem.”
OECD countries are forecast to grow by about two per cent in 1993 from around 1.5 per cent last year, compared with Australia’s forecast growth of four per cent, Fraser said.
Australia’s unemployment rate of 11.1 per cent was a result of a deep recession which had brought benefits such as improved productivity, lower inflation and a reduction in company costs, he added.
“Many structural and attitudinal changes have occurred which augur well for Australia’s future prosperity,” Fraser said.
“This cost-cutting, together with associated efforts to raise productivity, has real pluses for the economy in the longer term, but it involves immediate job losses,” he said.
He said the economy had been growing at a modest two to three per cent and needed to accelerate.
“I expect the economy to be growing at an annual rate of about four per cent by the end of 1993. Growth of at least that order is needed over a sustained period to provide jobs for all those people who want them,” Fraser said.
“The two main constraints on faster growth at present are slack business investment and the global recession,” he said.
“Fortunately for Australia the sustained rapid growth of most Asian economies, other than Japan, is cushioning the effects of global recession – these countries now account for about one-third of our total exports,” Fraser said.
But Fraser said the re-elected Labor government had to pursue its programme of tax breaks and government spending to boost economic activity without fuelling inflation.
“While a significant deficit can be sustained for quite some time, sooner or later it has to be wound back if we are to maintain the confidence of international investors,” he said.
Fraser said local interest rates were still too high considering Australia’s annual inflation rate of 0.3 per cent in calendar 1992, the lowest in the developed world.
“Real interest rates are still very high,” Fraser said in reply to a question. “It would be helpful to be able to lower interest rates further.”
He said any move on interest rates would depend on the level of interest rates around the world, continued low inflation and a restrained budget deficit.
The Reserve Bank last week cut official cash interest rates by 0.5 percentage points to 5.25 per cent. “Fortunately for Australia, the sustained rapid growth of most of the Asian economies (other than Japan) is cushioning the effects of the global recession - these countries now account for about one-third of our total exports,” Fraser said.
“Many structural and attitudinal changes have occurred which augur well for Australia’s future prosperity,” he said.