Country Report Australia October 1996 Main report

Summary--Australia 4th quarter 1996.

Outlook for 1997-98: The government's economic reforms will remain on track. No private consumption boom is foreseen, but business remains optimistic. No current-account crises are likely in the forecast period, but the currency will weaken slightly.

Political scene: The electorate appears to like the 1996/97 federal budget, and Labor has remained in policy limbo. One Labor senator has become an independent, improving the government's position in the upper house of parliament. Mr Howard has made his first foreign forays.

Economic policy: The underlying federal budget deficit will be cut, with both spending cuts and revenue-raising measures. The proposed super- annuation surcharge may be unworkable. The government has tried to woo the Democrats on industrial relations reforms. The Senate report on Telstra has split on party lines. Differing views have been expressed on bank merger policy. Cross-ownership restrictions have been reinstated for airport leases. Victoria has continued with electricity privatisation, and Queensland may sell off some assets.

Economy: Economic growth slowed in the second quarter of 1996, and household savings rose. Business has remained bullish on the prospects for private-sector investment. Growth levels have varied markedly between the states.

Sectoral trends: Herd rebuilding has pulled down agricultural output. Wheat price forecasts have been revised down. Mining output has remained flat, but the value of exports has risen. Negotiations on native title have broken down. Manufacturing output has fallen, and services output has increased only slightly.

Employment, wages & prices: Labour market conditions may be improving, but wages growth continues to be worrying. The discussion on guaranteed minimum wages has continued. Consumer price inflation has peaked.

Money & finance: Official interest rates were cut at the end of July. The merged Metway/Suncorp bank will stay in Queensland. The Reserve Bank has a new governor, and explicit inflation targets.

Foreign trade & payments: Monthly current-account deficits fluctuated around A$1.6bn during the first half of 1996. The improving balance of trade position has highlighted the size of the net income deficit. Net foreign debt rose during the second quarter, but the debt-service ratio fell.

Business news: The demutualisation of the National Mutual will be successful. Optus Communications is preparing an A$4bn share flotation. Air New Zealand has bought 50% of Ansett Airlines. The Coles Myer saga has continued.

© 1996 The Economist lntelligence Unit Ltd. All rights reserved
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