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Thursday, October 16, 2008

How bad are things? Please tell us

The Opposition and a growing body of economists are calling on the government to release the economic forecasts behind this week's $10.4 billion stimulus package as speculation swirls around what they might contain.

"This pacakge is bigger than we have ever seen before," said Professor Bob Gregory of the Australian National University. "That must mean that their forecasts are worse than anything we've ever seen before."

"And this has all happened very quickly, which must mean that any forecast that is on the record is out of date."...

The latest official forecast made at Budget time in May is for economic growth of 2.75 % during the current financial year. It is not due to be updated until the release of the Treasury's mid-year review next month.

In September before the latest financial turmoil the International Monetary Fund predicted 2.5% economci growth this year falling to 2.2% in 2009.

Private banks have cut their forecasts dramatically, although most believe Australia will escape a recession. The ANZ is forecasting 1.7% this financial year, with growth in the September quarter falling to just 0.1% and in the December quarter to 0.55.

But the bank's chief economist Saul Eslake says he is to some extent operating in the dark.

"I am surprised that the government hasn't seen fit to share with us at least the gist of their advice about GDP and employment," he said."

In Parliament In Parliament the Opposition's treasury spokesman Julie Bishop asked the Treasurer whether "in the interests of levelling with the Australian people", he would immediately release the revised economic forecasts behind the $10.4 billion package.

Mr Swan replied that he would not be releasing any forecasts until the mid-year review.

"That's the reasonable thing to do, that's the sensible thing to do. We will put it out there in plenty of time for there to be plenty of scrutiny because we do believe in transparency," he said.

In information that did become available yesterday Commonwealth Securities concluded that Australia had recorded its biggest slide in wealth in 18 years.

The firm used an updated modellers database released by the Treasury to conclude that wealth per Australian had dropped 3.6% over the year to June, sliding $12,100 in just nine months.

"It would have plunged even further since June, highlighting the urgency of moves to boost spending," said CommSec chief economist Craig James.

Asked at the National Press Club for updated forecasts Mr Rudd said he expected "slower growth and more unemployment than had been projected" but did not go into further detail.

"That underpins precisely the nature of the package that we have put forward. this economic security strategy is for the future, and it is simply the first instalment," the Prime Minister said.

The ANU's Professor Gregory suggested that in the absense of information the package might make things worse.

"The message a lot of people may be getting is not that these extraordinary measures are going to save us all, but 'good god - things must be really bad', he said.