More than ever before, the risks to Australia's economic development come from outside what we think of as "the economy". Risks such as terrorism, oil supply, bird flu and social disruption in China loom as potentially even more important than productivity, inflation or Australia's trade performance.
That is a key conclusion of the CEDA/Fujitsu 2006 Economic and Political Overview publication. It is the latest of CEDA's annual reports to its more than 800 member organisations on the year past and the year ahead.
"We face a new breed of global threats," says CEDA acting chief executive Mr Nick Dimopoulos. "Our financial markets and our companies will have to learn to deal with them."
"Australia appears to be successfully addressing many of its traditional concerns," notes Mr Dimopoulos. "Inflation appears to be under control, our housing market seems to be going through a 'soft landing', and our trade performance is forecast to improve in the year ahead."
The Overview's economic report, authored by BT Financial Group chief economist Dr Chris Caton, forecasts that the economy will grow by 3.2 per cent in 2006. That is up from an estimated 2.5 per cent for 2005 (see page 16 of the Overview). Inflation will stay at 2.7 per cent, and the current account deficit will ease to $46.5 billion from 2005's $52.6 billion. Unemployment is forecast to rise fractionally, from 5.1 per cent to 5.3 per cent.
"Most of the biggest risks to the Australian and world economies appear to be non-economic in nature", says Dr Caton. He singles out a bird flu pandemic as a potential disruption (see page 10), highlighting studies suggesting a major outbreak could reduce world GDP by around two per cent.
Dr Caton also argues that the Chinese economy could cause problems for Australia. "Eventually, China is going to have a poor year," he says. "That will probably be for non-economic reasons – most likely because of internal Chinese social problems."
In this year's special study for the Overview, economists Nick Gruen and Kenney Lin survey the outlook for oil prices. They find reasons for optimism – but also note that economic forecasting has failed to predict the damage from previous oil price shocks, adding a layer of uncertainty to today's forecasts.
The general manager of Fujitsu Consulting, Martin North, says business leaders face a different type of risk than in earlier years. "These risks are on a larger scale, and we don't know how likely they are," he says. "They're not tangible, they're not well understood, and they are harder for managements to react to. They call for stronger and more visionary leadership." Fujitsu Australia and New Zealand is sponsoring this year's Economic and Political Overview report and event series.
The 2006 Economic and Political Overview will be formally launched on Thursday morning at CEDA Economic and Political Overview conferences in Melbourne and Perth. They are the first of six conferences taking place over the next nine days in each of Australia's state capitals, to be attended by more than 1200 people from business, government, universities and other organisations.
Notes on the economic forecasts: CEDA stresses that short-term macroeconomic forecasting is an imperfect science. Dr Caton's views in the Overview are provided to CEDA in his private capacity and are not necessarily those of BT Financial Group.
For further information please contact:
John Harris
Corporate Relations Director
Phone 03 9652 8415
Email info@ceda.com.au
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