The risks to Australia's continued economic growth in 2007 are overwhelmingly linked with our natural resources.
That is a key conclusion of the CEDA/Fujitsu 2007 Economic and Political Overview reports. These are the latest of CEDA's yearly reports to its more than 800 member organisations on the year past and the year ahead.
"Natural resources dominate the economic agenda in a way that we have not seen for more than a quarter of a century," says CEDA acting chief executive Mr Greg Meek. "Demand for coal and iron ore is fuelling national growth and powering a boom in WA and Queensland. Oil prices and uranium are in the headlines weekly. Climate change has been elevated to a critical national issue. And alternative energy options are being closely scrutinised. Drought is cutting farm production and water scarcity has become an issue for every major Australian city."
The Overview's economic report, authored by BT Financial Group chief economist Dr Chris Caton, forecasts that the economy will grow by 2.8 per cent in 2007. That is up from an estimated 2.5 per cent for 2006 (see page 11 of the Overview). Inflation will fall to 2.7 per cent from 2006's estimated 3.6 per cent, and the current account deficit will ease to $45.0 billion from 2005's $50.0 billion. Unemployment is forecast to rise fractionally, from 4.9 per cent to 5.1 per cent.
Dr Caton argues that the US economy poses the biggest danger to continued growth in the world economy and in Australia (see page 7).
But he expects another year of moderate growth, with interest rates "more likely to fall than to rise further.
The Overview's political report, authored by the University of Queensland's Professor Ken Wiltshire, declares that Labor will be under especially close scrutiny in 2007: under Kevin Rudd, it needs to continue moving towards the political centre, but industrial relations may limit its ability to repair its relationship with business.
In this year's special report for the Overview, leading economist Professor John Quiggin of the University of Queensland surveys water management in Australia. His report concludes that Australia has a long-term water problem that can only be resolved by charging more for water and allowing irrigators to sell water to city users.
The executive general manager of Fujitsu Consulting, Martin North, says that Australian business needs to embark on a new wave of innovation aimed at reducing our carbon footprint. This will be challenging: Fujitsu research indicates Australian business innovation performance is mediocre by comparison with its peers. "We need to innovate more effectively to make better use of our natural resources," he says.
Fujitsu Australia and New Zealand is sponsoring this year's Economic and Political Overview reports and event series.
The 2007 Economic and Political Overview reports will be formally launched on Monday morning at the opening CEDA/Fujitsu Economic and Political Overview conference in Perth. This is the first of six conferences taking place over the next month in each of Australia's state capitals, to be attended by more than 1200 people from business, government, universities and other organisations.
The reports are included in the February edition of CEDA's Australian Chief Executive magazine.
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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