The Hindu Business Line : Australia struggles to find balance between growth, inflation

Canberra (Australia), March 5 Australia, like many economies around the world, is struggling to strike a fine balance between sustained economic growth and inflation control.

Last year, the country recorded GDP growth of close to 4 per cent, but inflation has begun to rear its head, forcing the new Government to initiate remedial measures.

As part of response system, and in a widely expected move, the Reserve Bank of Australia, on March 4, raised interest rate by 25 basis points, taking it to a 12-year high of 7.25 per cent. More rate hikes may be in store, it is feared.

Taking quick cognizance of the need to contain inflationary pressures, the Prime Minister Mr Kevin Rudd, said among his three major priorities, responding to the immediate challenge facing the country’s macroeconomic environment would be on top.

He was delivering the inaugural address at the ABARE (Australian Bureau of Agriculture and Resource Economics) Outlook 2008 seminar here.

Uncertainty over global growth slowdown and ominous signs of recession in the US are beginning too weigh heavily on the Australian Government. However, rising global commodity prices (energy, metals, agricultural goods) have resulted in record export earnings for the country. Australian commodity export earnings are forecast to increase by 30 per cent to a new high of $189 billion for 2008-09. Iron ore, coal, LNG, gold, grains and oilseeds are major items of export.

According to Mr Rudd, the second challenge facing the country related to lifting productivity and competitiveness of agricultural products and strengthening performance in global markets. Unfortunately, drought conditions last two years cut down farm output and reduced export surplus.

Strong global economic growth in recent years, particularly in emerging economies, has increased world demand for food, driven up commodity prices and expanded high value markets.

“Income growth in emerging economies and burgeoning middle-class in nations like China and India are changing global agri-food markets and creating tremendous new market opportunities for Australian agriculture,” he asserted adding even so, these were intensely competitive markets and hard work was needed to succeed.

Australia’s farm commodity export earnings are forecast to reach $31.4 billion in 2008-09, up 18 per cent from the projected $26.7 billion in 2007-08. The gross value of farm production is forecast to increase by 18 per cent to around $46.7 billion in 20008-09, after an increase of about 14 per cent in 2007-08.

However, the country has been facing goods and services trade deficit for nearly six years in a row now. Foreign debt is estimated at $570 billion. Export growth needs to be bolstered, he asserted.

The Government is planning to invest in skills, infrastructure, research, development and innovation. Water management, climate change and emission reduction are expected to get priority.

The country seems to be rather seriously concerned about global warming and climate change, and its impact on the economy. Climate change will substantially affect long-term productivity and profitability of agriculture and food sector, it is feared. From the talks of policymakers, it is clear, the Government is readying to meet the challenge head on.

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