Mid-Year Economic and Fiscal Outlook

The 1998-99 Mid-Year Economic and Fiscal Outlook (MYEFO), which I release today, demonstrates the impressive performance of the Australian economy in the face of extremely difficult international economic conditions.

The MYEFO is a confirmation of the Government's outstanding record of economic management, with a favourable mix of fiscal consolidation, credible monetary policy and ongoing microeconomic reforms underpinning economic growth.

The forecast for economic growth in 1998-99 has been revised up to 3 per cent - making Australia compare very favourably with the outlook for other developed economies. The Australian economy is the strong economy of the region.

The underlying budget surplus in the current financial year is estimated to be $3.3 billion - $580 million higher than estimated at the time of the 1998-99 Budget and more than double the 1997-98 surplus outcome of $1.2 billion.

Continuing underlying budget surpluses are forecast in each of the three forward estimate years 1999-2000 to 2001-02.

The 1998-99 MYEFO has been prepared in accordance with the Government's Charter of Budget Honesty Act 1998. This legislation has recently been hailed by the International Monetary Fund as setting a high standard for the transparent and accountable conduct of fiscal policy.

The revised fiscal estimates are based on updated economic forecasts for 1998-99, preliminary forecasts for 1999-2000 and projections for the other two years.

Australia's economic growth in 1998-99 is now expected to be stronger than forecast in the May 1998 Budget and stronger than forecast in the September 1998 Pre-Election Economic and Fiscal and Outlook (PEFO). The forecast of 3 per cent compares with forecasts of 3 and 2- per cent respectively.

Employment growth is expected to be stronger than at PEFO. However, over the course of the year, domestic demand is expected to slow which, together with the effects of slow world economic growth, mean that the unemployment rate is expected to remain broadly unchanged.

Inflation is expected to increase moderately from historically low levels as higher import prices gradually flow through into retail prices, but to remain within the 2 to 3 per cent monetary policy target band.

The current account deficit is expected to increase to around 5 per cent of GDP, from a little over 4 per cent in 1997-98, reflecting the weaker international environment. This forecast is below previous peaks and is underpinned by stable domestic fundamentals, including a strong fiscal position, low interest rates and low inflation. This contrasts significantly to previous episodes of increases in the current account deficit.

Economic growth in 1999-2000 is expected to be around 2- per cent in year-average terms, although strengthening through the year (3 per cent in through-the-year terms) reflecting a gradual pick-up in export growth and plant and equipment investment as the world economy strengthens.

The combination of sound fiscal policy, low interest rates and inflation and the expected moderate pickup in world growth during 1999-2000 should continue to underpin Australia's favorable economic performance by international standards.

The underlying budget surplus for 1998-99 is now expected to be higher than at the time of the Budget, while the underlying surpluses in the outyears have been revised down, primarily as a result of measures announced in A New Tax System.

The current fiscal outlook remains consistent with the maintenance of surpluses while economic growth remains sound, and the objective of halving Commonwealth General Government net debt to GDP remains on track.

The Government remains committed to maintaining its strong fiscal position and will be taking a highly disciplined approach during the coming Budget processes.