From the AFR:
Treasury’s top economic forecaster has warned that Australia’s nominal economy – what the nation is actually paid for what it produces – will grow below the historic average over the next two years, increasing pressure on the budget.
David Gruen, the head of Treasury’s macroeconomic group, also warned that the transition from resources investment to other drivers of economy growth “may not be as smooth” as forecast by the department.
Both Gruen and and his boss, Martin Parkinson, blamed it on the fall in the terms of trade but not the dollar. Given both have singularly cheered on the high dollar and the sell ’em dirt strategy of an endless commodity boom for the nation, a little mea culpa might also be in order.
There is some upside in that:
“It continues to be our view that the real economy will grow at around its trend rate over the next two years,” Treasury’s executive director of its macroeconomic group, David Gruen, told the hearing.”
In short they expect the recent deflationary boom to go on. But:
“It still remains our view that the medium-term trend in iron ore and coal prices will be down as substantial new supply comes on line,” Dr Gruen said, adding the terms of trade would trend down as a result.
When government departments start making noises like this then it’s time to assume the brace position.
