Swan Says Australian GDP to Grow Faster Than Expected

By Madelene Pearson and Jacob Greber

Nov. 2 (Bloomberg) -- Australian Treasurer Wayne Swan said the nation’s economy will grow faster than previously forecast, reducing government debt over the next five years by A$50 billion ($45 billion).

Net debt is expected to peak at 10 percent of gross domestic product in fiscal 2014, compared with 13.8 percent forecast in May, Swan told reporters today in Canberra. The economy will grow 1.5 percent in the 12 months to June 30, 2010, compared with a May prediction of a 0.5 percent contraction.

Australia’s economy is growing faster and generating more jobs than Swan forecast six months ago, driven by record interest-rate cuts and government borrowing to fund stimulus spending that pushed the budget into deficit. Rising household confidence, property prices and China’s demand for natural resources are among reasons the Reserve Bank will raise borrowing costs tomorrow for a second month, analysts say.

“The improved economic outlook reflects the effectiveness of monetary and fiscal stimulus in Australia, and the stronger global recovery,” said Swan, 55.

The nation’s currency rose to as high as 90.18 U.S. cents from 89.91 cents before the government released its mid-year economic review. It traded at 89.88 cents at 1:12 p.m. in Sydney.

The nation will have a cash deficit in the 12 months ending June 30, 2010, of A$57.7 billion, in line with the A$57.6 billion forecast in May, Swan said. The budget won’t return to surplus until 2015-16, he said

‘Cautious’ Forecasts

“The government is sticking with a big budget deficit” forecast for the current fiscal year, said Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney. “Their argument is it will take a while for the higher tax revenue to flow through.

“They’re sounding cautious because they want to keep pumping out the stimulus,” Walters added.

Economic growth unexpectedly accelerated in the second quarter at the fastest pace in more than a year, expanding 0.6 percent from the first quarter when it gained 0.4 percent.

Growth was driven by a surge in consumer spending after the government distributed more than A$20 billion in cash to households. Swan is also spending A$22 billion on roads, railways and schools. The central bank cut its benchmark interest rate by a record 4.25 percentage points between September and April before raising it last month.

Australian house prices rose in the three months through September for a second quarter, gaining 4.2 percent and beating the 3 percent median estimate of 18 economists surveyed by Bloomberg.

Stimulus to Stay

The International Monetary Fund last week reiterated its prediction that Australia’s economy will expand 0.7 percent this calendar year and 2 percent in 2010.

While government spending has “had a greater-than-expected impact on confidence,” helping the economy avoid a “deep recession,” it’s still too early to withdraw stimulus at a faster pace, Swan said.

“A more rapid withdrawal of fiscal stimulus than is planned would risk stalling the economy before a broad-based recovery in private demand has taken hold,” he said.

Fallout from the global recession means tax receipts will be A$170 billion less than predicted in May, the Treasurer added.

Mounting evidence of an economic rebound prompted Stevens to raise the benchmark interest rate last month by a quarter percentage point to 3.25 percent, making him the first Group of 20 policy maker to raise borrowing costs since the height of the global financial crisis.

Eighteen of 22 analysts surveyed by Bloomberg News expect Stevens will raise the overnight cash rate target by another quarter-point tomorrow. The rest predict a half-point increase.

Ongoing Deficits

The government today forecast a A$46.6 billion deficit in fiscal 2010-11 with 2.75 percent economic growth and a A$31.2 billion deficit the following fiscal year.

“In the three years from 2010-11 to 2012-13, the expected underlying cash deficit has improved by an average of 1 percent of GDP each year,” Swan said.

Net debt will reach A$153.2 billion in fiscal 2013-14, which is less than the A$203.1 billion peak forecast in May.

Inflation will be 2.25 percent this fiscal year, within the central bank’s annual target range of between 2 percent and 3 percent. It will be the same in 2010-11, Swan said.

The consumer price index rose 1.3 percent in the third quarter from a year earlier.

Australia’s jobless rate, which Swan predicted in May would reach 6 percent in the second quarter of this year and 8.25 percent 12 months later, fell in September for the first time in five months, declining to 5.7 percent from 5.8 percent.

The unemployment rate will rise to 6.75 percent by the June quarter of 2010, decreasing to 6.5 percent the following year, Swan said. The lower forecast means the equivalent of 250,000 fewer full-time jobs will be lost.

Swan is due to release the national budget for 2010-11 on May 11 in Canberra.

To contact the reporters on this story: Madelene Pearson in Canberra on mpearson1@bloomberg.netJacob Greber in Sydney at jgreber@bloomberg.net