(Bloomberg) -- Australia is on track to return to the black for the first time since the global financial crisis, almost doubling the size of its projected surplus in fiscal 2020.
- The underlying cash deficit will more than halve from May’s forecast to A$5.2 billion ($3.7 billion) in the 12 months through June 2019, before swelling to a A$4.1 billion surplus in the following year, Treasury said in Canberra Monday. The bottom line has been bolstered by higher company profits and commodity prices and falling unemployment.
Key Insights
- The turnaround follows almost a decade of spiraling deficits, following the deployment of fiscal policy in late 2008 to support the economy; net debt is now seen falling to 1.5 percent of GDP over the next decade from 18.2 percent in the current fiscal year
- Treasury is still seeing wage growth through rose-tinted glasses, trimming this year’s forecast to 2.5 percent but forecasting an acceleration to 3.5 percent in fiscal 2021. That’s optimistic given pay packets have hardly grown for the past five years
- Forecast GDP growth has been trimmed to 2.75 percent this fiscal year following a sharp slowdown in the last quarter, but is predicted to accelerate to 3 percent for the ensuing three years. Treasury reckons household consumption will support that expansion, again an optimistic call given house prices are tumbling
- The government said it’s helped drive down wholesale power prices by 17 percent this year; that’s one of the reasons the central bank is struggling to return inflation to the midpoint of its 2-3 percent target
- Given Australia’s economy has avoided a technical recession for 27 years, economists have been critical of both sides of politics for failing to run surpluses. That’s particularly been the case given the nation’s China-fueled mining boom
- Still, the government might fail to reap the political dividend expected of such a turnaround. Having churned through three prime ministers in its five years in office, opinion polls suggest Prime Minister Scott Morrison’s administration is unlikely to survive an election expected in May
- Against a backdrop of simmering U.S.-China trade tensions and with a policy rate at a record-low 1.5 percent, a government with renewed fiscal firepower is likely to be welcomed by RBA Governor Philip Lowe