Australia's economic growth will be somewhat stronger in fiscal 2008-09 than the latest forecast because of government stimulus and an easing of monetary policy, Treasury Secretary Ken Henry said.
The March quarter was stronger than expected and that means we are now thinking the gross domestic product rate in this country in 2008-2009 will be somewhat stronger, Mr Henry told an Australian Council of Local Government meeting in Canberra today.
There may be some upside to future years, but it is too early to tell.
The government on May 12 forecast the economy would stagnate in the year ending June 30 amid the global recession.
It would shrink 0.5 percent the following year, the government said.
Gross domestic product unexpectedly grew 0.4 percent in the three months ended March 31 from the fourth quarter, driven by $12 billion of government cash handouts and record interest-rate cuts that took the cash rate to a 49-year low of 3 per cent.
Mr Henry said public investment, including infrastructure building, would compensate for reduced business spending.
Business investment is going to be hard hit in the next couple of years, Mr Henry said.
The increase in public investment is forecast to make a very strong contribution and will help ensure total investment in the Australian economy remains up around historically high levels.
Terms of trade, a measure of export income, for the world's biggest shipper of coal and iron ore will also remain strong, Mr Henry said.
That means that terms of trade will be supportive of strong income growth in Australia in the next growth cycle, he said.
BLOOMBERG CANBERRA
