Australia faces long, tough road to recovery
Australia faced a "long, tough and bumpy road" to economic recovery, with joblessness, interest rates and prices to rise long after the crisis began to ease, Prime Minister Kevin Rudd warned on Saturday.world Updated: Jul 25, 2009 12:01 IST
Australia faced a "long, tough and bumpy road" to economic recovery, with joblessness, interest rates and prices to rise long after the crisis began to ease, Prime Minister Kevin Rudd warned on Saturday.
In a 6,000 word essay to the nation, published in the Sydney Morning Herald newspaper, centre-left Rudd said that Australia needed to embark on a decade of "nation-building" to protect itself from financial disasters of the future.
The worst global economic crisis since the Great Depression had slashed 210 billion dollars (170 billion US) from government revenues and cost 77 billion in stimulus measures to cushion the blow, he said.
Early signs had begun to emerge of the "green shoots" of recovery, but Rudd warned the process would be a protracted and painful one for Australia, which had only begun feeling the worst effects of the credit crunch.
"For some time after the worst period of the crisis Australians will feel continuing financial pressures and, in some areas, increased economic pain, not least because employment is a lagging economic indicator, not a leading one," Rudd wrote.
"As the global economy improves demand for commodities will pick up, causing prices to rise. For Australia, this will be a double-edged sword, providing a boost to our exporters but potentially inflicting higher food and petrol prices."
Rising growth would also propel record low interest rates higher, and returning the budget to surplus from 2016 would involve some "painful and unpopular decisions that will affect many Australians," he said.
Unemployment would likely peak a year after growth returned to positive territory, and economic pressures would hit just as the first benefits of recovery were felt, he said.
But with 70 percent of stimulus measures directed at infrastructure and nation-building projects, Rudd said that he believed Australia would emerge a stronger economy.
He also said government intervention, which included billions in one-off cash handouts to taxpayers, appeared to be gaining traction.
"Australia is performing better than most other economies, with the fastest growth, the second-lowest unemployment and the lowest debt and deficit of all the major advanced economies," said Rudd.
"We remain the only advanced economy not to have gone into recession." Australia has so far avoided a technical recession, as defined by two successive quarters of negative growth, posting the strongest figures of any advanced economy during the downturn.
Interest rates are at a 49-year low of 3.0 percent and unemployment, which Canberra has forecast to peak at 8.5 percent in June 2011, is at 5.8 percent.
Resource-rich Australia enjoyed a boom period of growth until this year as Chinese demand for its raw materials brought in a stream of export revenue.
Rudd called for an end to reliance on the "rollercoaster of the boom and bust of the mining sector on the sharemarket."
Instead, he said, Australia needed to reform its economy by embarking on a "building decade" to enhance long-term productivity.