A disappointing report by the Co-ordinator-General

Comments on Michael Stutchbury “Report fails to see fiscal recovery”, 28/08/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/report_fails_to_see_fiscal_recovery/

It is likely the case that the Treasury forecast got the shape of the economic recovery path seriously wrong, by underestimating the growth in the short term and overstating the media to longer term growth.

The shorter term issue was a failure to properly account the effects of two factors. The first one is the good shape of the Australian economy, like the main banks, was almost unaffected by the recession. And the second is our link with Asia, especially the China effect associated with its quicker recovery. Treasury clearly got this wrong.

The longer term issue was a failure of underestimating the serious damage to the US and other major western economies of the great recession following the financial crisis and the required adjustment in savings and consumptions in the US in particular over the next few years and possibly the next decade. Treasury is very likely to have got that wrong.

That adjustment will mean the US is likely to have a prolonged period of below trend growth and that in turn will affect the world growth as a whole, even though Australia is partially isolated from the US slowness.

The report by the Coordinator General is partly a self praising product. It does not appear to be objective and proper analysis. It is a pity the report was done by that person rather than an independent person.

Overall, the report was disappointing at the best.