Australian Financial Review
20th Oct 2004
You report (Costello Douses Optimism on Economy, October14) Treasurer Peter Costello's comment that the Treasury forecasts for average growth of 3.5 percent a year underpinning the pre-election economic and fiscal Outlook (PEFO) are "pretty optimistic" in assuming "uninterrupted growth for the next four years". He referred to "the big risks out there", with the biggest as oil prices.
However, Costello should be reminded of some salient aspects of PEFO and Australia's growth performance.
* The PEFO figures showing growth of 3.5 percent in 2006-07 and 2007-08 are not forecasts but projections based on the trend rate of growth in recent years. The outcomes may, of course, include higher or lower growth around the average.
* Despite an Asian crisis and a US recession Australia has now experienced a dozen or so years in which growth has averaged over 3.5 percent a year and has fallen below 2 per cent only once.
* Even if oil prices stay over $US 50 per barrel for some time, it is highly unlikely that this would constitute a growth-interrupting "shock".
* Given Australia's record of economic reforms and growth in recent years and the potential the Coalition now has to institute further productivity-enhancing reforms, it is surprising indeed that the Treasurer is so pessimistic