Bloomberg News

Australian Budget Prices Contracting Euro Economy, Swan Says

May 20, 2012

Australia’s federal budget, targeting a return to surplus next fiscal year, is taking a conservative view of Europe’s economic outlook, forecasting a 0.75 percent contraction this year, Treasurer Wayne Swan said.

“Determined, consistent and continuing action will be required by European policy makers to deal with the sovereign debt crisis, get their budgets back on a sustainable footing, and restore growth,” Swan said in his weekly economic note yesterday. Australia’s “budget takes a conservative view of Europe’s economic outlook, with the euro area forecast to contract by 3/4 of a percent in 2012.”

Prime Minister Julia Gillard’s minority government, seeking to impress voters as a sound economic manager, this month promised to achieve a budget surplus of A$1.54 billion ($1.52 billion) for fiscal 2012-13, ending four years of deficits. Her Labor Party faces a general election next year.

“Australia is not immune from events in Europe,” Swan said in the note. “But it’s important we don’t lose sight of the fact that our economic credentials are among the strongest in the world: we have one of the lowest unemployment rates in the developed world, we have sturdy public finances with very low public debt.”

The economy of the 17 member-states euro area will contract 0.3 percent this year, the median forecast of 41 analysts compiled by Bloomberg shows. German Finance Minister Wolfgang Schaeuble said May 19 turmoil in the financial markets caused by Europe’s debt crisis may last two more years, as Group of Eight leaders prepared to discuss Greece and its impact on the global economy.

Equity Markets

German Chancellor Angela Merkel and fellow European leaders face pressure from their G-8 counterparts to do more to quell the crisis after almost $4 trillion was wiped from global equity markets this month amid speculation that Greece will exit the euro.

Australia, whose biggest trading partner China is driving demand for the nation’s minerals and energy exports, is well equipped to withstand outside shocks as investment in the mining projects continues, Swan said.

“We have contained inflation, we have a huge pipeline of mining investment, and we have a budget returning to surplus next financial year ahead of every single major advanced economy,” he said.

Gillard, the nation’s first female prime minister, is being buffeted by scandals that have weakened her control of parliament. Support for her Labor party is at 30 percent for the primary vote with the opposition Liberal-National coalition at 45 percent, according to a May 15 Newspoll released in the Australian newspaper.

At the Queensland state election in March, the Labor-led government suffered a landslide defeat, ending its 14 years of rule. The Liberal National Party won 79 of the 89 parliamentary seats.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net


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