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MYEFO analysis by economies -

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MYEFO analysis by economies

The World Today - Wednesday, 5 November , 2008 12:26:00

Reporter: Stephen Long

ELEANOR HALL: Our economics correspondent Stephen Long joins us now to analyse the Treasury's
update on the economic outlook.

Stephen, how would you describe the forecasts in the mid-year economic outlook?

STEPHEN LONG: I would describe them Eleanor as aspirational, more an expression of hope than a firm
target. Clearly this is what the Treasury wants to achieve and they don't want to spook people by
giving a negative outlook.

Forecasting is very difficult at the best of times, particularly difficult in these circumstances,
with that caveat though, these forecasts do look optimistic, particularly on unemployment, if we
get through this crisis with the unemployment rate peaking at 5.75 per cent, up just 1.5 per cent
on what it is now, I think most people would consider that a stellar result.

ELEANOR HALL: Well how does this stack up with the kinds of forecasts we're getting from market

STEPHEN LONG: It'd be at the very top end of market economist's forecasts and well above the
consensus forecast, particularly on unemployment where most people think we'll go above six per
cent and could end up above nine per cent according to JP Morgan, which is sort of more at the
bearish end of forecasting, so even though we are looking at three quarters of the budget surplus
being wiped out, I think most people would consider that that is optimistic and we'll be lucky to
get through this without the budget going into deficit.

So really it doesn't stack up with what the market is expecting, and if we do achieve what the
Treasury is saying then people will think we've got through this well.

ELEANOR HALL: Now the Reserve Bank yesterday when it cut rates said that it now appeared likely the
economy was weaker than expected. Is it using the same numbers as Treasury?

STEPHEN LONG: Well no in a word, I mean we haven't got the latest Reserve Bank forecast, we'll get
them when they release their statement on monetary policy the latest one next week, but they
clearly have signalled that they are revising down their outlook for economic growth and if you
look at the last statement on monetary policy, quarterly statement on monetary policy we had, they
haven't got aggregated annual economic growth figures but they've got quarterly breakdowns and they
were looking at growth ranging between two and 2.5 per cent going through to June 2010.

So they were already looking at growth, fairly pared back and they clearly going to revise that
down sharply. Now I think, that you're going to see a situation where the Treasury forecasts are
very much at odds with what the Reserve Bank is going to be expecting which is an interesting
situation given that Ken Henry the Secretary of the Treasury is on the Reserve Bank Board.

ELEANOR HALL: Stephen Long our economics correspondent, thank you.