Economic outlook
Mr Speaker, these are challenging times. Countervailing forces are creating high inflation at home and economic turbulence abroad.
Weaker global growth and the effects of monetary policy are slowing our economy. Inflation has increased in recent years, pushing up interest rates, and putting more pressure on families. Eight interest rate rises in three years, and the global slowdown, are expected to see growth in our economy moderate to 2¾ per cent in 2008‑09.
Potent forces in the global economy are pushing Australia in opposite directions. Slower growth in the United States and turbulence in world financial markets are affecting many countries, including our own. At the same time, the prices of our exports are rising strongly, when domestic inflationary pressures are already high.
Robust growth in emerging economies, particularly China and India, is expected to drive further large rises in Australia's terms of trade, boosting income and price pressures. The terms of trade are anticipated to rise by over 20 per cent by the end of this year. This will be the largest increase in a generation, lifting nominal economic growth to 9¼ per cent, the highest rise in 19 years.
The Australian economy is enjoying its 17th year of growth, now spanning three governments. But productivity growth over the last five years has averaged 1.4 per cent a year, the lowest in 17 years. And capacity constraints have put upward pressure on inflation.
When the Government came to office less than six months ago, Australia was facing the highest levels of domestic inflation in over 16 years, and inflation reached 4.2 per cent in the March quarter. The price of bread has risen over 18 per cent in the last two years alone.
Inflation is a drag on growth. It saps confidence, and hurts families and businesses throughout Australia. We are working to put downward pressure on inflation so that we can ease the cost of living and interest rate pressures on working families.
Our nation also faces longer term challenges and opportunities, in the form of an ageing population, the economic effects of the rise of China and India, and the consequences of climate change.
With careful, responsible economic management, we are confident we can meet these challenges.
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