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Australia caught in Asian boom and US bust

PM Rudd vows to cut govt spending among other plans to curb inflation

SYDNEY – BOOM in Asia and bust in the United States are buffeting Australia’s economy, Prime Minister Kevin Rudd warned yesterday as he outlined plans to rein in inflation.

‘The most pressing economic challenge domestically is inflation,’ he told a meeting of business leaders in the west coast city of Perth, in his first major speech on the economy since his Labor party swept former prime minister John Howard’s conservatives out of office last November.

Announcing a new government strategy to curb prices, Mr Rudd promised to slash government spending to help dampen inflation.

Inflation is expected to exceed the Reserve Bank of Australia’s target range of 2 per cent to 3 per cent this year, raising the prospect of further interest rate rises by the central bank.

Rates are at an 11-year high of 6.75 per cent, and the effect on mortgage-belt voters is believed to have played a part in the ouster of the previous government.

‘This will be a tough fight, but unless we engage in this fight, the consequences for businesses, employees and families will be very negative indeed,’ the Prime Minister said.

He set a new target of maintaining Australia’s budget surplus at a minimum of 1.5 per cent of gross domestic product – or about A$18 billion (S$23 billion) – from the next fiscal year which starts on June 1.

‘We will ensure the government takes the pressure off demand by running a strong budget surplus,’ he said. ‘The sensible thing for government to do is not contribute to demand through excessive spending.’

Mr Rudd also promised incentives to encourage Australians to save rather than spend.

He said that Australia faced ‘conflicting economic currents’. These were: ‘A global economy (led by the US) which appears to be slowing. An ongoing terms of trade boom driven by Asia-Pacific economies. ‘And significant domestic inflationary pressures at home.’

He noted that the downturn in the economic outlook in the US, Europe and Japan comes as strong growth in the Asia-Pacific region is continuing to drive demand for Australia’s rich mineral and energy resources.

‘Over coming years, developments in China will increasingly shape both global and Australian economic conditions,’ he said.

‘The Indian economy has become one of our fastest growing export markets and is expected to continue to post impressive rates of economic growth.

‘Combined, China and India accounted for around 40 per cent of Australia’s export value growth in 2006/2007.’

This economic expansion in the region had heightened the need for careful management of the domestic economy, he said.

Mr Rudd’s speech came after the Australian stock market lost ground for a 10th successive day – its worst losing streak since 1982.

Australia’s benchmark S&P/ASX 200 Index was down more than 2 per cent in early afternoon trade yesterday in Sydney.


Source: AGENCE FRANCE-PRESSE, ASSOCIATED PRESS (The Straits Times 22 Jan 08)


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