Federal Treasurer Wayne Swan has defended Treasury's growth forecast, saying it does not conflict with more pessimistic predictions by the World Bank and the Reserve Bank of Australia.
Federal Treasurer Wayne Swan has defended Treasury's growth forecast, saying it does not conflict with more pessimistic predictions by the World Bank and the Reserve Bank of Australia.
Last week's mid-year budget review forecast a growth rate of 2.0 per cent for the current fiscal year, more optimistic than the World Bank's 1.8 per cent estimate and the RBA's revised 1.5 per cent.
"They don't represent a conflict at all. In fact, they are broadly similar," Mr Swan told Sky News today from Washington.
"There is a difference in terms of the Reserve Bank and the Treasury forecasts because the Treasury forecast does take into account the loosening of monetary policy.
"For obvious reasons, the Reserve Bank's forecasts do not.
"There is not a great difference between the IMF (International Monetary Fund) forecast and the Treasury forecast, they are broadly similar and they demonstrate the dramatic impact on the Australian economy of the slowdown in the international economy," he said.
Economists expect the RBA will cut the cash rate by a further 50 basis points when its board meets next month, with follow-up reductions next year taking the cash rate toward four per cent from its current 5.25 per cent.
"I don't speculate on what the RBA will do in terms of future interest rate decisions, but they have cut interest rates in a space of a couple of months by 200 basis points," Mr Swan said.
"That is certainly going to stimulate growth in Australia, just as will our economic security package.
"Both those things, happening in tandem, is important for strengthening domestic growth, protecting households and protecting jobs," Mr Swan said.
Last month, the government announced a $10.4 billion stimulus package which will provide one-off payments to pensioners, carers and low-income families, and increase the First Home Owners Grant.
The Reserve Bank slashed its economic growth forecasts yesterday and warned of a sharp spike in unemployment in a bleak assessment suggesting that interest rates would fall another 1.5 percentage points over the next three months.
And Mr Swan believes China's massive economic stimulus package will have a positive impact on Australia's economic growth.
China announced a four trillion yuan ($A856 billion) economic stimulus package yesterday to boost spending on infrastructure, as well as agriculture and other sectors.
"This is a very good example of what other nations can do to strengthen their economies in the face of the global financial crisis," Mr Swan said.
"The Rudd government put in place a month ago our economic security strategy, which is a pretty strong fiscal stimulus in Australian terms and it is great to see the Chinese are now doing the same.
"That will have an impact on confidence around the world, and certainly it will have an impact on the growth prospects for emerging countries in our region and I believe in the end flow-on consequences for Australian growth as well."
However, there is a determination among the world's developed and developing countries to coordinate action to strengthen the global economy, Mr Swan says.
In Washington for a meeting of G20 leaders later this week, Mr Swan took part in a weekend gathering of finance ministers and central bankers in Brazil.
There was a need to counter the dramatic slowdown in world growth while reaching an agreement for new structures that can prevent a repeat of the global financial crisis, he said.
"I think there is a determination amongst finance ministers, and certainly there will be amongst world leaders, to put forward a plan for coordinated action ... to ensure we can strengthen growth and we can put in place the structures for the future that will prevent a repeat of the sort of events we've seen over the past 18 months," Mr Swan told Sky News.
The G20 was the appropriate body to deal with the situation because it brought together both developed and developing countries.
"As we know, there is a marked slowdown in developed countries and the news emerging from developing countries at this forum was there is also a marked slowdown occurring in those countries.
"So I think there was quite a consensus that we need to see coordinated action across the globe when it comes to fiscal policy ... monetary policy and ... matters such as Doha trade round, that can strengthen growth in the future and stabilise financial systems in both the developed world and the developing world."
While in Washington, Mr Swan will discuss global action to deal with the financial crisis during a meeting with US Federal Reserve Chairman Ben Bernanke today.
Mr Swan said his discussions with Mr Bernanke would include how the global financial crisis was unfolding and its impacts on the US and other economies.
"We will also discuss the impact of recent policy responses designed to restore stability and confidence to global markets," Mr Swan said in a statement.
These include the US government's bail-out plan - called the Troubled Asset Relief Program - and other US initiatives to address the problems facing its financial system.
"We will also discuss the significant economic boost governments and central banks are providing to their economies right around the world, by way of monetary and fiscal policy, including the very significant fiscal stimulus announced by the Chinese authorities," Mr Swan said.
Mr Swan will also meet with a number of financial sector policy experts, including former International Monetary Fund official Professor Anne Krueger, now of John Hopkins University.
