Australian GDP to be helped by farm and global recovery

Australia's economy should be in a solid position over the next two financial years as it recovers from severe drought and as a global recovery helps to offset a downturn in housing, a Reuters poll found.
Economists expect Australia to expand by 3.7 percent in the year to June 30, 2004, and by 3.5 percent in 2004/05, up from 2.7 percent in fiscal 2003, the median forecast from the latest Reuters quarterly survey of 10 research houses found.
"The fact you have got both the farm sector coming back and the global growth story - we think the US is going to have a great year - means it will partially offset the housing downturn," said Westpac senior economist Andrew Hanlan.
"Our view is premised on the RBA doing another 50 basis points. So if they don't raise rates, we see upside risks to our growth forecasts," Hanlan said.
The Reserve Bank of Australia was the first among the world's major central banks to enter into a tightening cycle last year, as it tried to curb excessive household debt associated with a prolonged housing boom.
Rate hikes in both November and December have left the Australian cash rate at 5.25 percent, 425 basis points over US fed funds. Financial markets are pricing in a third rate hike.
Such a rate premium lifted the Australian dollar 34 percent over 2003, and its gain has continued in the early stages of 2004, making for six-and-a-half year highs above 78 cents.
The Reuters poll suggested the Aussie can rally to 80 cents by June, before suffering a modest pullback to 78 cents by year-end.
The currency's strength is helping to contain imported inflation, but is crimping exporter competitiveness. The Reuters poll expects consumer price inflation will be contained within the Reserve Bank's target of two to three percent over the next two fiscal years, having blown out to over three percent during the height of the drought last year because of expensive food and petrol.
Australia's current account position is expected to continue to improve, albeit slowly, as the Aussie's strength restrains the export recovery.
As a proportion of GDP, the deficit would shrink to 4.5 percent by fiscal 2005, according to the poll, from an estimated 5.4 percent in fiscal 2004 and an actual rate of around 6.6 percent in the June quarter of last year.