Ken Henry warns against winding back stimulus, Telstra shareholder anger grows: Economy Roundup

Treasury Secretary Ken Henry has said before a Senate inquiry into the Rudd Government’s stimulus package that he remains cautious about the economy, and that winding back stimulus could cost jobs.

“The effect of the stimulus on growth likely peaked in the June quarter of 2009,” he said, adding that “most economic data released since the budget has been more favourable than we, and indeed others, expected.”

But Henry said he remains cautious about the outlook for the economy, warning that recovery is still in its early stages and that growth is expected to remain below trend for some time. “Evidence of a self-sustaining recovery in private activity remains tentative at this time,” he said.

But Henry also said that if the Government’s stimulus measures were not introduced, the economy would have contracted in the December 2008, March 2009 and June 2009 quarters and that 100,000 jobs would have been lost.

He also warned that withdrawing the stimulus too early could “risk stalling the economy and causing a steeper rise in the unemployment rate”.

“If all the stimulus scheduled to impact in 2010/11 was cancelled, that would mean a further detraction of 1.5% from GDP (gross domestic product) growth and the loss of up to an additional 100,000 (jobs),” he said.

Telstra shareholders speak out against split

Meanwhile, Telstra’s institutional shareholders have spoken out against the Federal Government’s plan to split the company between its retail and wholesale divisions.

Investors Mutual, 452 Capital, BT Investment Management and the Australian Foundation Investment Co. are among the shareholders that have submitted responses to the Senate regarding the proposals, as reported in The Australian.

BT Investment has called for a Productivity Commission investigation into any proposal, while 452 Capital is seeking an independent report on the matter.

The Australian sharemarket has opened higher today after positive leads from overseas markets, and managed to hit a 12-month high early this morning before losing ground.

The benchmark S&P/ASX200 index was down 3.9 points or 0.08% to 4764.7 at 12.00 AEST. The Australian dollar also reached a 14-month high overnight nearing US91c, but remained steady at US90c.

ANZ shares gained 0.7% to $24.91, while Commonwealth Bank shares jumped 0.3% to $53.12. Westpac shares dropped 0.7% to $26.11, as NAB gained 0.2% to $31.42.

The Commonwealth Bank has now issued $2 billion worth of PERLS V hybrid securities, mostly sold to retail investors with about $1.5 billion placed with brokers and institutions. About $488 million was sold to shareholders, and $5 million to general applicants.

Elders has now decided now to participate in the capital raising that was announced by Forest Enterprises last month, in which it holds a 31.1% equity interest.

Elders’ decision not to take part in the equity issue will force the company into a $32.2 million reduction to investments in joint ventures and associates, total assets and total equity, but the company has warned it will have no major impact.

Babcock & Brown Infrastructure receives new funding

Canadian company Brookfield announced yesterday that it would fund more than half of a $1.8 billion capital injection into the troubled Babcock & Brown Infrastructure. The company said it will buy up to $713 million in new BBI shares, and $295 million of BBI assets.

Brookfield also said it will take a 35-40% stake in BBI, and is making the investment through parent company Brookfield Asset Management. The move comes as BBI is desperate to pay down its $9 billion debt.

“If the recapitalisation is not approved, there is no certainty that the BBI corporate lenders will agree to a debt moratorium or any other debt restructure,” BBI said recently in a statement.

In the US, Federal Reserve chairman Ben Bernanke has said the Fed will continue to support the economy but that stimulus measures, such as low interest rates, will be removed as a recovery grows.

“Accommodative policies will likely be warranted for an extended period,” he said in a statement. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road.”

On Wall Street, stocks rose as the number of jobless claims fell to a nine-month low of 521,000 last week, indicating signs of a recovery. The Dow Jones Industrial Average gained 0.6% to 9786.87.