Australia to grow 3.25%, says bank


Latest surveys show business confidence is improving in Australia

By CNN's Geoff Hiscock, Asia business editor

SYDNEY, Australia (CNN) -- Improving business confidence in Australia will keep the economy on track for 3.25 percent growth this year, according to the National Australia Bank.

Releasing its quarterly business survey on Tuesday, Australia's biggest bank said it expected strength in the economy would be helped by a likely global recovery from mid-2002.

Australian business confidence has improved markedly from its levels of three months ago, following the September 11 terror attacks in the United States, the bank added.

But it warned there remained a "significant degree of uncertainty" in the global economic environment.

According to the bank, Australia's economy grew a probable 2.2 percent in 2001 at a time when most of the industrialized world -- including the United States, Japan and Europe -- was in recession.

Boosted by cheap currency

CNN.com Asia

More news from our
Asia edition

Analysts say there are both cyclical and structural reasons for Australia's strong economic performance in 2001 and the optimistic outlook for this year.

The Australian dollar was at historic lows against the U.S. dollar for much of last year. In April it touched a record low of 47.75 U.S cents, and in recent months has traded between 51 and 52 U.S. cents.

The cheap currency, combined with higher commodity prices for some Australian exports, improved the country's trade performance.

Business also benefited from six interest rate cuts in 2001, taking the benchmark cash rate down to 4.25 percent, its lowest level in 30 years.

In addition, a government subsidy to first-home owners helped fuel a boom in the housing and construction sector, which offset some of the downturn in the Australian tourism and transport sectors after September 11.

Housing boom likely to wane

That housing boom is expected to wane in the second half of the year as the subsidy is phased out.

Releasing the quarterly survey, the NAB's chief economist Alan Oster said Tuesday that beyond mid-2002, the "critical assumption" remained a return to growth in the U.S. and the global economy

"Assuming the global recovery is underway, a pickup in business investment and exports in the second half of 2002 should partially offset some weakening in domestic demand, as housing sector activity turns down significantly," he said.

Earlier this week, the leading think tank Access Economics said Australia could be a "miracle economy" this year, with growth of 3.5 percent in 2001-02 and 3.8 percent in 2002-03.

It said low interest rates, government spending, the housing boom, a cheap currency and the need to rebuild inventories would all help keep the Australian economy outperforming the rest of the industrialized world.

But like the NAB survey, Access Economics warned that this would be threatened if the world economy did not recover by the second half of the year.