Economic outlook
The outlook for the Australian economy is for solid output growth, low unemployment and moderate inflation. In year-average terms, GDP growth is forecast to strengthen from around 2 per cent in 2004‑05 to 3 per cent in 2005-06. Australia will continue to benefit from higher terms of trade in 2005-06. Strong world demand has resulted in substantial increases in contract prices for some of Australia’s bulk commodity exports. These high export prices will result in strong growth in national income through 2005-06.
The combination of solid output growth, moderate inflation and a 28-year low in unemployment provides a sound platform for further sustained improvement in Australia’s economic wellbeing.
Table 2: Major economic parameters (percentage change from previous year)
- Labour Force Survey.
- Wage Price Index.
Source: Australian Bureau of Statistics (ABS) Cat. No 5206.0, 6202.0, 6401.0, 6345.0 and Treasury.
Table 2 presents the major economic parameters used in preparing the budget. The parameters for 2004‑05 and 2005‑06 are forecasts while those for 2006-07, 2007‑08 and 2008‑09 are projections.
Projections for 2008‑09 incorporate an employment growth assumption that has been adjusted down by ¼ of a percentage point. This reflects, for the first time, the anticipated decline in labour market participation as the population ages and some ‘baby boomers’ start to retire. The downward adjustment to employment brings projected GDP growth down to 3¼ per cent in 2008-09. Real GDP projections and updated analysis of labour force projections from the Intergenerational Report 2002‑03 are discussed in Box 6 of Statement 3.
The nominal GDP projections incorporate a technical assumption that commodity prices will return progressively to their long-run average level. This technical assumption recognises the probability that present historically high commodity prices will not persist as world supply expands. The technical assumption has the effect of reducing nominal GDP growth in 2006‑07 and 2007-08. Real GDP growth projections for these years are unchanged. The assumptions underlying the nominal GDP projections are discussed in more detail in Box 7 of Statement 3.