Swan announces deficit reduction, Stevens signals rate rises, market rises after Wall Street rally: Economy Roundup

The Federal Government has announced the final budget deficit for the 2008-09 year was $27.1 billion, down $5 billion from the original forecast.

Treasurer Wayne Swan said at a press conference that lower levels of spending and higher than expected receipts of $2.8 billion had helped to reduce the deficit, which was predicted by some economists to improve by as much as $10 billion.

Swan said the revisions provide “a tentative step forward since the most recent forecasts in the May budget of this year”.

“This outcome reflects in part the success of our economic stimulus which has meant more Australians in jobs and fewer Australians collecting unemployment benefits than would otherwise be the case.”

“The stronger than expected final budget outcome does not substantially diminish the fiscal challenge imposed on Australia by the global recession, which has resulted in the largest fall in budget revenues compared with its comparable budget year forecast since 1930-31.”

Additionally, net debt was $16.1 billion by the end of 2008-09, an $11.5 billion improvement from the prediction in the 2009-10 budget in May. Swan said the improvement in both figures is due in part to economic stimulus, and that it is important to continue to shore up poor business investment.

“Economic stimulus has been important during this period and remains important in the period ahead because we do know that business investment will still be weak,” Mr Swan said. “And if business investment is weak that has ongoing implications for the payment of company tax and revenue.”

Stevens signals economic recovery, rate rises to come

Meanwhile, Reserve Bank of Australia governor Glenn Stevens said in a Senate inquiry yesterday that the country’s economic outlook is good due to the Government’s stimulus payments, and the country has remained resilient during the downturn.

“I have maintained throughout that Australia’s medium-term prospects remained good and that we should not lose confidence,” he said. “Measures of business and household confidence have shown a very substantial pick-up from the low points reached earlier this year.”

His comments led many to believe interest rates may be on the rise later this year, as Stevens has indicated the current cash rate of 3% is the likely bottom of the rate cycle. But he said it was not yet clear when rates should rise.

“What interest rates should do is respond to the outlook for the economy and inflation in a timely fashion,” he said. “Whether that turns out to mean that they start to rise before unemployment stops rising remains to be seen.”

“If [unemployment] peaks at six-point-something, I don’t want to sound callous in the way I say this, but that’s a pretty low peak in comparison with others we’ve seen,” he said.

The Australian share market has opened higher after a number of acquisitions occurred in the health and technology sectors in the US overnight.

The benchmark S&P/ASX200 index was up 87.4 points or 1.87% to 4764.8 at 11.55 AEST. The Australian dollar also moved up to US87c.

Commonwealth Bank shares increased 1.8% to $51.98, while ANZ shares increased by 2.3% to $24.90. Westpac shares rose 2% to $26.62, as Woolworths gained 1.2% to $29.31.

Qantas records 6% increase in passenger numbers

Meanwhile, Qantas has recorded a 6% increase in the number of group passenger numbers in August compared to the same month in 2008, with the revenue seat factor up 2.8% to 80.5%.

Additionally, passenger numbers on Jetstar International flights doubled during August year-on-year, with Jetstar’s domestic operations recording a 1.3% increase in passenger figures.

As reported in The Financial Review, the Sydney Lane Cove Tunnel has been put up for sale due to poor traffic performance that has led to unsustainable losses.

The project has seen Leighton Holdings write off $132 million, Mirvac $57.5 million and Hong Kong-based Li Ka-shing write off $133 million, the paper reported without naming sources.

“Traffic volumes to date have been significantly lower than originally forecast,” New York-based company MBIA said in its annual report. According to The Financial Review, less than half the expected traffic level of 100,000 cars per day was recorded during the tunnel’s operation.

In the US, Wall Street rallied due to a number of acquisitions that led investors to take a more optimistic view of the market after three consecutive days of losses. The Dow Jones Industrial Average rose 124.17 points or 1.28% to 9789.36.