until report released (1.00am Thursday 1 October 1998, AEST)

The IMF in its world economic outlook forecasts calendar year growth at 3.5% in 1998 and 2.0% in 1999.

These calendar year forecasts are not directly comparable with Treasury’s forecasts, which relate to the financial year. The IMF figures imply a forecast of 2% over 1998-9, and a projection of 2% over 1999-2000. The Treasury forecast for 1998-9 is 2-%.

While the IMF and Treasury have a similar view of the strength of the world economy, Treasury has a slightly stronger assessment of the strength of the Australian domestic economy. A range of factors influence its view, including:

• Solid retail trade supported by low interest rates, high levels of corporate profitability, job vacancies are at a high level, investment intentions point to ongoing growth in business investment, and exporters are continuing to seek alternative markets.

The IMF forecast for Australia in 1998 has been revised up. Previously the IMF expected Australia would be more adversely affected by developments in Asia than proved to be the case. As revealed in the June quarter National Accounts, the Australian economy showed remarkable resilience in the face of recession in Asia.

While there has been and will continue to be a significant impact on Australia from the Asian crisis and the broader slow-down in world economic growth, this has been already factored into Treasury forecasts for 1998-99.

Nevertheless, in the face of such serious instability in the region, it is essential to maintain the pace of economic reform to strengthen the Australian economy.

The IMF report notes the need to maintain Australia’s fiscal policies. It states: “In Australia, the achievement of an underlying budget surplus in 1997/98 – a year ahead of schedule – means that the projected rise in the current account deficit is taking place against the background of a significant improvement in public finances.”.

MELBOURNE

30 September 1998