BUSINESSWEEK ONLINE : DECEMBER 18, 2000 ISSUE
BUSINESS OUTLOOK Australia: Tightening Begins to Bite After experiencing a lift to their economy from the Summer Olympics, Australians should prepare for less than a gold-medal performance in coming months. The economy is slowing around the edges, although not to any worrisome degree. Consumers are cooling off, and housing remains weak compared with a year ago. The economy's biggest engine is exports, and that should continue into 2001. But after real gross domestic product soared at a 4.7% average annual rate for the past three years, growth is likely to slow to 4% for the year ending June, 2001. That at least was the word from Reserve Bank of Australia Governor Ian Macfarlane when he testified before Parliament on Nov. 30. He said domestic demand would have a ''substantial slowdown,'' growing by about 3% instead of the current 6% pace. But a weak Aussie dollar would bolster exports. A softer economy worries Australia's executives. Business confidence plunged in the fourth quarter. And the profit outlook is the lowest in 10 years. With signs of a slowdown increasing, RBA policymakers kept rates unchanged at its Dec. 5 meeting. The RBA had raised its overnight cash rate by a total of 1.5 percentage points from November, 1999, to August, 2000, but now policy bias is in neutral (chart). The RBA's tightening moves were aimed at keeping inflation in check. Although a 25% jump in oil prices has boosted total consumer prices, inflation was rising even before fuel costs spiked. In the third quarter, consumer prices were up 6.1% from a year ago, but the rate was skewed by the introduction of a 10% sales tax. Macfarlane said the RBA expects inflation to settle down to 3% by mid-2002. That rate would be at the upper limit of the RBA's inflation target. The high inflation rate is partly the result of the weak Aussie dollar, which will lift import prices. Indeed, the RBA could face a tough challenge next year. It may have to strike a balance between the weak Aussie's benefits to exporters and its cost in the form of higher inflation. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Australia: Tightening Begins to Bite CHART: The Reserve Bank Stays on Hold INTERACT E-Mail to Business Week Online

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