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Slow recovery tipped

THE current hard times for the Australian economy began in the latter half of last year and are still present. The downturn may be brief and a recovery is likely towards the end of the year following through to 2002. Economic indicators support the view that the economy will, in all likelihood, not contract much more or for very long.

These are among the conclusions in the first 2001 issue of the Western Australian Quarterly Bulletin of Economic Trends, released recently at the Western Australian Business Economics Forum (WABEF) breakfast briefing, hosted by Curtin Business School.

The economic forecast is a joint project between two of the most prestigious business research institutes in Australia — the Institute for Research Into International Competitiveness (IRIC) at Curtin University of Technology and the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne.

The Business Forum aims to provide the WA business community and policy makers, with relevant and topical business information, to encourage and enable competitiveness in a changing environment.

The factors which might jeopardise our economic recovery include the equity markets, which, despite the recent correction, are still overvalued compared with historic values, as well as high levels of corporate and household debt.

Any readjustment of balance sheets to reduce debt by reducing spending will mitigate against any quick rebound.

In these circumstances, neither declining interest rates nor a weak dollar may be enough to provide a stimulus to end a contraction and moderate the slowdown.

The spectre of the ‘liquidity trap’ looms, if only distantly and the experience of Japan over the last several years is a warning about complacency.

Given this, GDP growth is forecasted to reach a low of 0.9 per cent (year-ended) in the June quarter this year, before rebounding to around 2.5 per cent through the end of 2002.

Consistent with this lower level of growth, the unemployment rate is expected to rise above 7 per cent, but then to stabilise at that level.

For Western Australia, the Melbourne Institute forecasts negative growth of around three per cent over the first half of 2001.

There is reason, however, to be more optimistic for 2002, with business investment set to pick-up, as the effects of a lower dollar benefit Australia’s most exporter-oriented state.

This should mark the beginning of a return to levels of State growth which WA has become accustomed to in recent decades, as well as a return to more robust employment growth, with future potential for declines in the unemployment rate.

IRIC is the principal research institution of the Curtin Business School and is committed to high quality applied economic and business research in international competitiveness and related areas.

The scope of IRIC’s operations includes applied research and development, publication, consulting and corporate services, with a particular focus on Australia’s competitiveness and the Asia-Pacific region.

* Dr Martin West is the Deputy Director of the Institute for Research and International Competitiveness (IRIC) at Curtin Business School. Tel: 9266 3041. E-mail him at westm@cbs.curtin.edu.au

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