Analysts cast doubt on Treasury's forecasts
ECONOMISTS have greeted with scepticism the budget forecasts for robust growth alongside tame inflation and say capacity constraints could disrupt Australia's recovery.
Treasury's forecast for the budget to return to surplus by 2012-13 assumes economic growth will leap to 4 per cent in 2011-12, from the current rate of 2 per cent.
Some market analysts say this is realistic, because the country is already benefiting from a powerful surge in mining investment.
But others doubt growth will be as strong as Treasury says, arguing that such a quick bounce would unleash inflation, prompting the Reserve Bank to slow things down through higher interest rates.
The chief economist at Nomura, Stephen Roberts, queried the forecast that inflation would retreat from 3.25 per cent this financial year to 2.5 per cent over the next two years.
In comparison, the Reserve Bank last week forecast inflation to stay near 3 per cent - the top of its comfort zone - until 2012.
''On Treasury estimates there would be no cause for the RBA to tighten policy further and temper [gross domestic product] growth, but if the RBA forecasts are nearer the mark - which we believe - near 4 per cent growth would be unsustainable without some inflation pressure,'' Mr Roberts said.
He doubted Treasury's view that household consumption growth would hit 4 per cent in 2011-12, with further mortgage rate rises likely to squeeze spending.
''That's pretty hefty, particularly as we are unlikely to see interest rates get any lower,'' he said.
Forecasts from the RBA and Treasury factor in interest rate rises in line with market expectations - which are for the cash rate to rise from 4.5 per cent to 5.25 per cent in the next year.
BIS Shrapnel also questioned the outlook for the engineering construction industry, which Treasury forecast would surge by 20 per cent in 2010-11 and 2011-12, pushing investment to more than $60 billion by 2011-12, from about $40 billion.
A senior manager at BIS's infrastructure and mining unit, Adrian Hart, said the assumption was ''heroic'' and a different outcome could affect the whole economy's growth rate.
A clutch of big infrastructure and resources projects were nearing completion and the next acceleration would not kick off until 2012.
''The 2000s boom absorbed a lot of excess capacity and, despite the [financial crisis], the constraints and skills shortages created by this boom have not really left,'' he said.
Nearly all economists agreed that world growth would be a key influence on Australia's fortune because it was fuelling the mining sector.
Treasury forecast global economic growth would hit 4.25 per cent this calendar year and next, but said Europe's sovereign debt woes could prevent this from occurring.