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Economic Outlook - A Commentary

The Australian economy has surprised international observers with its resilience maintaining a growth rate substantially higher than that of most other developed economies.

Australia’s economic fundamentals have remained sound due to a combination of stable prices, sound fiscal position, low public debt, strong financial system, and healthy employment growth. This together with expansionary monetary and fiscal policies has served to insulate Australia from recent global slowdown.

The strength of the Australian economy is reflected in the solid performance of Australia’s equity market. Share prices in Australia, despite recent falls, remain more robust than in other countries, with corporate profitability remaining solid.

Rating
In January 2003 Moody’s Investor Service reaffirmed Australia’s top ‘Aaa’ credit rating. Moody’s also said that the country benefits from stable politics, a market orientated regulatory regime, and a pragmatic policy stance.

Inflation
Australia’s inflation is expected to be moderate in 2002-03, underpinned by steady wage increases and solid productivity growth. Although the Australian economy continues to expand at a solid pace, wage and prices pressures should remain moderate.

Interest Rates
Typically a strong domestic economy such as is currently found in Australia, along with the current high levels of employment can prompt a rise in inflation due to increased spending. The current economic climate caused the RBA to lift interest rates to the still quite low level of 5.5% in March 2005.