AUSTRALIA faces a longer period of low growth, higher debt and higher unemployment than predicted just four weeks ago as the wave of job losses gathered strength.
The Australian reports that as Treasury chief Ken Henry presented a bleak view of the economic outlook yesterday, telling the Senate economics committee that the downturn was infecting business across the economy, Reserve Bank director Roger Corbett said the global situation looked "very dangerous"."I think the situation is a lot more serious than it was at the end of last year, and I think it will be well into 2010 before we see any significant recovery," Mr Corbett said.
But in a rare note of optimism, US Federal Reserve chairman Ben Bernanke said economic recovery was possible in 2010, but this would depend on policymakers' ability to break the "destructive power" of the mutually reinforcing financial and economic weakness.
"If actions taken by the administration, the Congress and the Federal Reserve are successful in restoring some measure of financial stability - and only if that is the case in my view - there is a reasonable prospect that the current recession will end in 2009," Mr Bernanke said in testimony to Congress.
On the same day that clothing manufacturer Pacific Brands announced it was axing 1850 staff around the country, Dr Henry said mining, construction, manufacturing and services industries were all buckling under the weight of the global downturn. "We do anticipate that the period of economic weakness will be broadly based," he said.
There is growing concern that the world economy is taking another sharp downward step, with renewed concerns for banking stability and falling consumer and business confidence. This may lead to another larger than expected interest rate cut when the Reserve Bank meets on Tuesday.
But Dr Henry said the intensity of the downturn was testing Treasury's long-standing practice of preparing thorough economic forecasts for no more than the next 12 months while relying on projections that it would grow at the long-term trend rate of about 3 per cent a year beyond that. "We all know that is not how the economy will behave," he said.
Dr Henry said the forecast that the Government's debt would grow to no more than 5.2 per cent of gross domestic product by 2011-12 was built on these optimistic projections.
"That raises a question of should we be forecasting over a longer period of time, so we can explain to the Government and to this committee what we think the trajectory of the budget balance will be over several years," he said, noting that in the US, 10-year forecasts were prepared. Dr Henry's comments came as clothing maker Pacific Brands - whose brands include King Gee and Bonds - announced it would close seven factories in NSW, Victoria and Queensland, cutting its total staff by almost a quarter.
The company, which produced a $149.95 million loss in the first half of the 2008-09 financial year, will move some of its operations into Asia to access cheaper labour.
Opposition Treasury spokesman Joe Hockey said the sackings were evidence of the failure of the Government's $10.4 billion pre-Christmas economic stimulus package, designed to boost consumer demand. Mr Hockey ridiculed Wayne Swan's comments last month that the cash payments to pensioners and families had been spent on "socks and jocks"."Today Australia's socks and jocks manufacturer has cut 1850 Australian jobs," Mr Hockey said.
However, the Treasurer accused the Opposition of taking delight in bad economic news.
"It's almost as if you can hear the glee in their cries," he said.
Full report at The Australian
