Australia's Stimulus: Headaches and Hangovers

Australia's stimulus: political headaches, fiscal hangovers

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• Australia’s outperformance is building pressure on the government to reduce spending more aggressively

• The negative impact on GDP would be noticeable, but superficial

• Even assuming significant cutbacks, Australia’s growth outlook is resilient beyond 2010

In our report on the 2010 outlook for Australia (“Australia’s economy in 2010: still ‘the lucky country,’” GDW, January 8), we highlighted the remarkable resilience of the Australian economy in the face of the global recession. We also, however, pointed to the unfortunate fact that avoidance of a downturn limits the extent of the rebound, particularly relative to those being enjoyed elsewhere. We forecast a much improved, but still below trend, growth rate of 3.0% in 2010, as growth in domestic demand is hampered by the removal of policy accommodation. While the RBA already has taken significant steps to withdraw the monetary stimulus put in place during the darkest days of the crisis, the government’s fiscal plans remain largely in place.

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