Economy remains resilient while global growth drags

The Australian economy has weathered external pressures and is still faring relatively well compared with many other leading economies. Commonwealth Bank chief economist Michael Blythe points out that global growth remains mediocre, and an early return by the United States to the stellar growth rates of the late 1990s is unlikely.

'The Australian economy, in contrast, remains resilient,' he says. 'Growth in the non-farm economy is sitting more or less on its long-run average of 4 per cent per annum, and many of the factors that allowed the Australian economy to outperform over the past 18 months or so remain in place.'

The risks in the outlook are skewed to the downside, Mr Blythe says, and factors restraining the Australian economy are yet to fully run their course.

'The drought and the weak global economy will remain a drag on growth, and growth is unbalanced. The economy remains a little too reliant on housing.

'Business investment may be rising. But capital expenditure plans are susceptible to adverse shocks and shifts in sentiment.

'We expect the Australian economy to grow by 3.2 per cent in 2002/03 and 3.7 per cent in 2003/04. The sort of growth profile we envisage should be enough to keep some modest downward pressure on unemployment and it should keep inflation in the upper half of the Reserve Bank of Australia's 2 to 3 per cent target range.

'The consensus view has the Australian dollar moving up through 60 US cents in the months ahead. The issue really is one of sustainability. We look for the Australian dollar to attain 60 US cents or a little more during the first half of 2003. But recognition that slow US economic growth is here to stay may see the Australian dollar finish the year back at 57 US cents.'