Australia's Costello cautious on global upturn


Australian Treasurer Peter Costello remains cautious about the global outlook

By CNN's Geoff Hiscock, Asia business editor

SYDNEY, Australia (CNN) -- Australian Treasurer Peter Costello does not expect to see signs of a sustained global economy recovery until the second or third quarters of this year.

Costello told CNN television Wednesday that he was cautious in his outlook and was still worried about the economic slump in the United States and Asia.

Costello's remarks come amid expectations the U.S. Federal Reserve will leave interest rates unchanged this month, on signs that the US. economy may be stabilizing, despite the Enron shock.

As Treasurer, Costello has presided over a standout performance by the Australian economy in 2001, with growth of more than 2 percent in 2001 and a likely spurt to more than 3 percent in 2002.

A highly competitive exchange rate, better commodity prices and strong domestic demand kept the Australian economy moving ahead when others in the region were shrinking last year.

Finished on high note

Releasing its December monthly business survey Tuesday, the National Australia Bank's chief economist Alan Oster said the economy finished 2001 on a high note.

While warning of testing times ahead, the bank -- which is Australia's biggest commercial bank -- said it saw no reason to change its growth forecast of 3.25 percent for 2002.

Costello, who is Australia's acting prime minister while John Howard is in New York this week at the World Economic Forum, said he did not believe the United States was on the threshold of a surge or early recovery.

"It will take some time. I am also worried about the downturn in Asia, particularly Southeast Asia," Costello said.

Responding to descriptions of Australia as the region's "miracle economy", Costello said the country's big challenge remained the international economic environment.

"We have got to keep (Australian) consumer demand very strong," he said.

Housing sector running down

The one area of concern among Australian economists is that the strong housing sector, which helped underpin the good performance in 2001, will run out of steam by the second half of 2002 as a government subsidy for first-home owners is phased out.

The NAB's Oster said in his commentary on Tuesday that the expected gap in Australia's growth momentum would need to be filled by increased exports and business investment.

"Here, a turnaround in US activity and confidence is critical," Oster noted.

Costello told CNN that while he wanted an international recovery "the sooner the better", he expected it to take time.

"I don't expect to see signs of vibrancy in the international economy until the second or third quarter of this year," he said.