Just as well it’s Australia Day tomorrow. Time to sit around after the barbeque and digest the very different perspectives streaming our way about the economy and figure out whether any of this should affect our planning for the remainder of 2012.
The International Monetary Fund, not known for hubris, spooked the world last night announcing that the world will face a “1930s moment” of the kind that brought on the Great Depression unless money can quickly be found to support nations such as Italy and Spain. The IMF downgraded economic forecasts and floated the prospect of fund backers including Australia being called on to supply up to $1 trillion to support these countries and make sure the crisis doesn’t worsen.
This morning an upbeat Wayne Swan hit the airwaves and denied that this negative outlook means the government should change its financial forecasts.
Obviously the Federal Treasurer can see further ahead than the IMF because he says the growth figures they are using for global growth are similar to those factored into the mid-year review.
And once again he trotted out the line that Australia is not immune but our economy is projected to grow by 3.25% cent this coming year and the same the year after.
When asked if the government had factored in worst-case scenario, he replied that of course it hadn’t, as that would be “completely irresponsible”.
Swan also reiterated that the government stood by its pledge that the budget would be in surplus.
“The fact is that the IMF is commenting about what the extreme outcome could be if those circumstances were to arise,” he said. “They have not arisen as yet and therefore it would be irresponsible to factor that into forecasts.”
Swan also reiterated that yes, they stand by their pledge that the budget will be in surplus. And we once again end up with the message that the sun is shining on this corner of the world and we are still the lucky country.
Good old Australia. And this is what is probably most worrying. Is politics getting in the way of a government that should be changing tactics to cope with a deteriorating situation?
Has the government boxed itself into a corner? It has been under attack for reneging on promises first on carbon tax and then on the pokies. Is the government sticking to its promise that it will deliver a surplus even as the global economic situation deteriorates further so that it won’t be walloped for telling yet another big lie?
The danger of course is that as the spectre of politics starts to overshadow the economic debate, we start to ask more questions about the validity of the government’s outlook.
Swan tried to shrug off that line of questioning this morning.
“We’ve handled global instability of that type before. We handled that in 2008 and 2009 and we came out of it in the best position of just about any other developed economy,” he says. But when it was pointed out that there was a large surplus on hand to assist in the bail out, Swan replied that it is 2012 and not 2008.
“We’re not facing those circumstances where there was a dramatic drop in global demand,” Swan said.
And if we did? “Well we’ve got policy flexibility in both monetary policy and fiscal policy,” he said.
Yes, but you are committed to a surplus?
And around we went in circles.
Glad it’s Australia Day tomorrow.
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