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Treasury Secretary Ken Henry recently took on a challenging job. He took on the task of defending the new national budget forecasts, reassuring Australians that the forecasts were not overly optimistic. The latest forecasts have generated criticism from citizens across Australia, but Henry is confident that the forecasts are true indicators of how the nation will successfully emerge from the current recession.
According to the forecasts, the gross national product (GNP) will not have any growth during the current financial year. The next financial year will see a GNP decrease of about 0.5 per cent, but the growth for the following year (2010 - 11) will be 2.25 per cent. The next two years (2011 - 12 and 2012 - 13) should have GNP growth of 4.25 per cent, followed by a constant 4 per cent for the next four years. Most of the questions have been directed at the 4.25 per cent GNP growth projected for 2001 - 2013, because the normal trend growth rate is only 3 per cent.
Why is there so much debate about the optimistic forecasts? Shouldn’t everyone be ecstatic about the good news? With the ongoing recession, it seems that everyone should be embracing forecasts that project larger than normal increases in the GNP. But Australians are hesitant to believe the forecasts outlined by Henry, even though they would like nothing more than a strong recovery from the recession. The world is in the midst of an economic downturn that rivals only the Great Depression, and Australians don’t want to be fooled into thinking that the end of this turbulent financial period is closer than it actually is. After all, these times do call for extra caution.
Henry insists that the forecasts are conservative and reasonable. His reminder to Australians is that the rebound periods for the recessions of the early 1980’s and early 1990’s were shorter that the predicted rebound from the present recession. The 1980’s downturn took only one year for recovery, while the 1990’s took only two. Henry asserts that the three years of recovery (2009 - 2011) provided in the recent forecast is ample time for Australia’s economy to turn around and be on solid ground once again. Referring to the years of predicted above average growth, Henry stands behind the theory that when the economy rebounds from this recession, it will bounce back stronger than ever.
Henry stated that, “Consumer confidence has been much better preserved in Australia than in other countries.” It is true that we have learned valuable lessons from the recessions of the past few decades, and as a whole, our economy is more flexible and resilient now than in earlier years. Compared to the earlier recessions, interest rates were decreased much faster, and the government stepped in with a stimulus program before things got out of hand. Considering all this, Australians are in a good position to weather this economic storm. As in any storm, we are all just trying to figure out how long it will last and how much damage it will cause. The recent forecasts are only that - forecasts. And only time will tell.
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