Australia faces a “long, tough and bumpy road” to economic recovery, with joblessness, interest rates and prices to rise long after the crisis begins to ease, Prime Minister Kevin Rudd said yesterday.
In a 6,000-word essay published in the Sydney Morning Herald, newspaper, Rudd said Australia needed to embark on a decade of “nation-building” to protect itself from financial disasters.
The worst global economic crisis since the Great Depression has slashed A$210 billion (US$170 billion) from government revenues and cost A$77 billion in stimulus measures to cushion the blow, he said.
Early signs have begun to emerge of the “green shoots” of recovery, but Rudd warned the process would be a protracted and painful one for Australia, which has only begun feeling the worst effects of the credit crunch.
NOT OVER YET
“For some time after the worst period of the crisis Australians will feel continuing financial pressures and, in some areas, increased economic pain, not least because employment is a lagging economic indicator, not a leading one,” Rudd said.
“As the global economy improves demand for commodities will pick up, causing prices to rise. For Australia, this will be a double-edged sword, providing a boost to our exporters but potentially inflicting higher food and petrol prices,” he wrote.
Record low interest rates will rise, he said, while returning the budget to surplus from 2016 would involve some “painful and unpopular decisions that will affect many Australians.”
The unemployment rate would likely peak a year after growth returned to positive territory, and economic pressures would hit just as the first benefits of recovery were felt, he said.
But with 70 percent of stimulus measures directed at infrastructure and nation-building projects, Rudd said he believed Australia would emerge a stronger economy.
He also said government intervention, which included billions in one-off cash handouts to taxpayers, appeared to be gaining traction.
Rudd said “Australia is performing better than most other economies, with the fastest growth, the second-lowest unemployment and the lowest debt and deficit of all the major advanced economies.”
“We remain the only advanced economy not to have gone into recession,” he wrote.
Australia has so far avoided a technical recession, which is defined as two successive quarters of economic contraction.
It has posted the strongest figures of any advanced economy during the downturn.
Interest rates are at a 49-year low of 3 percent and unemployment, which Canberra has forecast to peak at 8.5 percent in June 2011, is at 5.8 percent.
Resource-rich Australia enjoyed a boom period of growth until this year as Chinese demand for its raw materials brought in a stream of export revenue.
Rudd called for an end to reliance on the “rollercoaster of the boom and bust of the mining sector on the sharemarket.”
Instead, he said, Australia needs to reform its economy by embarking on a “building decade” to enhance long-term productivity.