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Drought cuts Australian GDP outlook
By Geoff Hiscock
SYDNEY, Australia (CNN) -- The severe drought in Australia has sliced 0.75 percentage points from the country's growth outlook for the year to next June, Australian Treasurer Peter Costello said Wednesday. Costello said the government had revised its forecast for 2002-03 down to 3.0 percent from 3.75 percent six months ago. The Treasurer also confirmed the government was delaying by a year its full selloff of Telstra, the dominant Australian telecom in which it holds a majority stake. Costello said non-farm sectors of Australia's economy are expected to continue to grow solidly, and the outlook for 2003-04 could rebound to 4 percent if the drought breaks. Much of Australia has been in the grip of a drought for the past year, delivering a sharp cut to the 2002-03 grain harvest and to farm output in general. In addition, the hot, dry and windy conditions have seen the early onset of the bushfire season, with grazing land, livestock, farms and some houses destroyed by fires in recent weeks. Rates on hold
The government's revised outlook is largely in line with those of private-sector economists, most of whom have tipped cuts of 0.7 to 1.0 percentage points for 2002-03 growth. Earlier this month, the central Reserve Bank of Australia left its benchmark interest rate unchanged at 4.75 percent, amid worries about a weaker global economic outlook and the impact of the drought. (Full story) The government's commodities forecaster, ABARE, last month again cut its winter grain harvest outlook for the world's No. 2 wheat exporter. (Full story) It said production of the four major crops in the southern winter -- wheat, barley, canola and lupins -- would reach just 14.8 million tonnes in 2002-03, down 57 percent from last season's near-record harvest of 34.1 million tonnes. Costello also confirmed that the government is pushing back the full selloff of Telstra by a year. It had planned to sell its 50.1 percent stake in three equal lots from 2003-04 and aimed to raise a total of A$35 billion (about $20 billion) from the sales. (Full story) That would have made Telstra potentially one of the biggest equity offers seen in Asia Pacific markets. But a recent plunge in Telstra's share price -- it fell to a five-year low of Aust. $4.38 on Tuesday -- has forced Costello to delay the start of the sale process to 2004-05. Telstra stock is up 1.37 percent to A$4.44 by Wednesday afternoon. 'Continued resilience'Costello said the government's mid-year economic and fiscal outlook released on Wednesday showed the "continued resilience" of the Australian economy despite unfavorable international conditions and the impact of the drought. He said the outlook for a Budget surplus compared very favorably with the significant deficits being recorded in other OECD countries.
The underlying cash surplus forecast for 2002-03 remains at $2.1 billion, the same as when the Budget was released in May. Costello said a slight fall in expected tax receipts was offset by a slight fall in cash expenses. Internal demand is forecast to increase by 4.75 percent in 2002-03, underpinned by solid consumption growth and a strong pick up in business investment. Export growth is slowing, with farm exports in decline. Total exports are likely to grow just 2 percent in 2002-03, compared with a 6 percent growth forecast six months ago. Imports are still expected to grow by about 10 percent, reflecting strong domestic demand, particularly in business investment. Costello said net exports were expected to subtract 1.75 percentage points from GDP growth, with the substantial downward revision since the Budget largely reflecting the expected effects of the drought on farm production and incomes, and the weaker global environment. He also warned that there were "substantial risks" for the government's 3.0 percent GDP growth outlook. "A weaker outcome is possible if the dry conditions persist or if global economic conditions deteriorate further," he said.
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