Economic outlook
Prospects for Australian economic growth remain sound, particularly with strong growth anticipated for the world economy. Global growth is driving robust demand for Australian commodities and producing high commodity prices. This is generating a significant boost to the economy, with business investment set to grow strongly over 2006-07 and export growth likely to improve markedly. These developments are benefiting Australian businesses and households by supporting growth in national income.
Australia’s GDP is forecast to increase by 3¼ per cent in 2006-07, up from 2½ per cent in 2005-06. Moderate inflation, low unemployment and an expansion in Australia’s productive capacity will provide a sound basis for sustained economic growth.
Table 2 presents the major economic parameters used in preparing the budget. The parameters for 2005‑06 and 2006-07 are forecasts while those for 2007-08, 2008-09 and 2009-10 are projections.
Table 2: Major economic parameters(a)
- Year-average percentage change.
Source: Australian Bureau of Statistics (ABS) cat. no. 5206.0, 6202.0, 6401.0, 6345.0 and Treasury.
The projections from 2008-09 incorporate an employment growth assumption that has been adjusted down by ¼ of a percentage point to reflect the anticipated decline in labour market participation from the ageing of the population as identified in the Intergenerational Report 2002-03. The downward adjustment to employment brings projected real GDP growth down to 3¼ per cent from 2008-09.
Similar to the approach adopted for the 2005-06 Budget, the nominal GDP projections incorporate a technical assumption that iron ore and coal prices return progressively to their long-run average levels. The technical assumption has the effect of reducing nominal GDP growth in 2007-08 and 2008-09.