The road to recovery

Better than expected economic data, including news that the economy managed to avoid recession in the first quarter of 2009, has bolstered expectations that our economy will remain resilient.

The Reserve Bank of Australia’s July decision to leave the cash rate on hold has contributed to the upbeat mood, which was also reflected in the Westpac and The Melbourne Institute’s Index of Consumer Sentiment. In June the Index recorded its largest increase in 22 years, rising by 12.7 per cent to 100.1 points.

The Organisation for Economic Co-operation and Development (OECD) has also forecast a better than expected recovery for Australia, with its latest economic outlook predicting a 0.4 per cent contraction in growth in 2009 and 2.4 per cent growth in 2010 – much stronger than for other OECD countries.

The OECD has also predicted unemployment in Australia to rise to only 6.2 per cent by the end of the year and 7.7 per cent in 2010 – more optimistic than the federal government’s forecast in May of an 8.25 per cent unemployment rate by mid-2010.

Meanwhile the Rudd government’s economic management has drawn praise from the International Momentary Fund (IMF), which said the government’s quick implementation of fiscal and monetary policies had provided a sizeable boost to domestic demand.

Overall there is increasing evidence that the global outlook is also on the mend. The IMF raised its forecast for global economic growth next year by 0.6 of a percentage point to 2.5 per cent.

With Australia’s economy intrinsically linked to global economic conditions, this development bodes well for our overall domestic outlook. While our economy has stood firm in the face of global recession compared to other developed economies, an overall lift to the global economic forecast should trickle through to a more robust economic environment for Australian business and borrowers.