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Release of national accounts figures affects the value of the Australian dollar; implications for Budget deficit and interest rates considered; report on trading on foreign currency markets

ELLEN FANNING: If it wasn't for spending by the Government there'd be next to no economic recovery at all. That's the starkest conclusion to be drawn from the national accounts figures released today and it's one that's pushed the Australian dollar down to yet another all time low. Against the US dollar, our currency is now worth just 67.4 US cents; against Japan, just 72 yen; and against the Government's trade weighted measure, 49.1 index points, the lowest level on record. Well, the national accounts themselves showed continuing modest economic growth, stronger than in many other countries, but nowhere near enough to create a significant number of new jobs. With the details, our economics correspondent, Peter Martin.

PETER MARTIN: It was Paul Keating himself who boasted during the March election that if he couldn't manage economic growth of 4 per cent a year he might as well give the game away. Today's accounts provide us with annual growth of 2.5 per cent and next to no clues whatsoever as to how the Keating Government intends to lift it. We know how they got it as high as they have - seven tenths of the rise in spending in the March quarter is due to a rise in Government spending. If it hadn't been for that jump in Government spending and the jump in the size of unsold stocks in warehouses national spending, as measured by GDP, would have fallen last quarter. The informed comment tonight is there's now no way the Government will be cutting the Budget deficit below $18 billion in August. To do so would be to risk the recovery we have, evaporating. The Acting Treasurer, Ralph Willis, as good as confirmed this, this afternoon when he was asked whether he planned to make a big cut in the Budget deficit.

RALPH WILLIS: I think we made it clear that that's not our policy, that what we're looking at is not taking steps in '93-94 which would have an adverse effect on growth. Growth at 2.5 per cent is moderate and we don't want to have any lesser rate of growth and if we were to go gung-ho into '93-94 slashing the deficit, in order to repair the fiscal balance as quickly as possible, we may well find that we had quite adverse effects on growth in '93-94 and that's clearly not what we want. But that doesn't in any way indicate any lack of resolve on our part to address the Budget outcome over the course of the next few years.

PETER MARTIN: And therein lies the heart of the Budget strategy, such as it is - do very little in the Budget itself but lay out a comprehensive and believable plan for cutting the deficit in the future, in the hope that things get better by then. It'll be difficult between this Budget and the next, for example, there's the Prime Minister's Employment Committee - it'll report and doubtless recommend more Government spending. Like sharks circling a panicked prey this afternoon, the foreign exchange market zeroed in on the Government's dilemma, pushing down our dollar against the yen, against the US dollar and against about every other currency with which we trade. Tonight the Australian dollar is worth just 72 Japanese yen; at the start of this year it could buy 85. Ralph Willis insists he isn't worried.

RALPH WILLIS: We have a commodity driven currency, in large part, despite the very strong growth in manufactured exports which over the last twelve months have grown by about 18 per cent. We are nevertheless, host to world markets in terms of a large proportion of our exports and in those circumstances, low world growth will mean an adverse effect on our export values and volumes and therefore some continuing balance of payments difficulty.

PETER MARTIN: It certainly is true though that there'll be no further easings of interest rates for quite some time.

RALPH WILLIS: I don't think it's appropriate for me to be spouting about monetary policy. Reserve Bank spelled out the issues which relate to, or the policy parameters which relate to monetary policy in its January bulletin and they remain relevant and in those circumstances, we'll continue to assess monetary policy as appropriate.

PETER MARTIN: Decoded, that means as the Reserve Bank said in its January bulletin - we can't afford to cut interest rates, even if we want to, because of what would happen to the dollar. Currency trading gets under way in Europe shortly.

ELLEN FANNING: Peter Martin, and Peter is still with me in the studio tonight. What's happening on the currency markets at the moment, Peter?

PETER MARTIN: With trading just beginning in London, we see the Australian dollar at about where it's been, 67.4. It has been as low as 67.1 against the US dollar; against the yen, we're buying 72 yen. Now there are two theories about what's going to happen in London, as dealers get into work, with quite different potential outcomes for the Australian dollar. One is that because they will be getting back from holidays, they've been on holidays yesterday, and they'll look at both the news on the balance of payments and the news on the national accounts, they'll take it all together, put it together as the dealers in Australia have done, and say the Australian dollar is due for a fall and the local people haven't cut it far enough. There was some confirmation for that theory today with a wire agency report quoting the ratings agency Standard and Poor's, saying they were concerned or saying there was a cause of concern about the Australian dollar. Now, the other theory is that big things have been happening in the US, especially on Friday with the US budget deficit pushing the US dollar down against the Japanese currency, and that may be taking up the minds of the investors and Australia, being in some ways an unimportant country, may escape through the net and may pass unnoticed. So, there are two competing theories about what's going to happen overnight. One is that Australia will be singled out for attention, punishment if you like, by the countries who believe that they know better than us about economic management. The other theory is that they'll think that we're just not important enough to bother with for the moment.

ELLEN FANNING: Thanks Peter. Our economics correspondent, Peter Martin, with those details.