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Australia's economy is operating well below its capacity, Treasurer Wayne Swan said Wednesday, citing sustained easing of inflationary pressures in the economy.
"There is spare capacity and what we have to do is put in place a range of policies that ensure when we begin to grow more strongly, that we don't see a return to the capacity constraints that we've seen in the past."
Earlier in the day, data released by the Australian Bureau of Statistics showed that annual headline inflation moderated to 1.3% in the year through to the September quarter, down from 1.5% in the previous period. Swan noted that it was the lowest annual headline rate in ten years.
Annual headline inflation has now decreased from 5% recorded one year ago to 1.3% currently. Quarterly growth of 1% in the consumer price index was largely driven by some unusually large increases in utility prices, charged by state energy providers.
Swan said private business investment in Australia is set to remain weak in the near term and unemployment is still expected to rise. Domestic incomes would be constrained for some period of time due to a substantial reduction in the working hours and lower terms of trade. It is to support jobs until the recovery takes hold that policymakers are withdrawing both fiscal and monetary policy support only gradually and carefully. He noted that the effect of the fiscal stimulus has already peaked and is already tapering away.
"The gradual withdrawal of stimulus will subtract from growth through 2010 making room for an expansion in private activity," he said. "The bulk of the stimulus that remains is, of course, in critical nation building infrastructure - investment in major highways, rail upgrades, ports, hospitals and schools." Swan asserted that this infrastructure investment will build future productive capacity - the key to ensuring strong growth with low inflation, into the future.
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