World Economy

Australia Budget Deficit Growing

Australia Budget Deficit GrowingAustralia Budget Deficit Growing

 Australia’s budget deficit could expand by billions of dollars more than expected, according to a new report.

Risks from economic shocks to the government’s budget revenues were “weighted to the downside”, said a Parliamentary Budget Office analysis, BBC reported.

The 2014-15 budget was particularly susceptible to slower-than-forecast labor productivity growth and a weaker terms of trade, the report said.

Australia’s economic growth is largely dependent on mining and agriculture.

The analysis comes as a falling iron ore price and the government’s inability to get all of its revenue-raising bills through the Senate has put further pressure on the budget.

Budget cuts and achieving a budget surplus were key planks of Prime Minister Tony Abbott’s election campaign last year. His government pledged to end budget deficits by 2018-19.

There is now about A$11b ($9.4b) in annual budget savings held up in the Senate, according to estimates made earlier this month by independent economic consultancy Macroeconomics.

The government also faces an additional A$10b in unfavorable economic variations annually by 2017-18, it said.

“This is the mining boom unwinding, causing an income slowdown due to the interaction of falling commodity prices and sub-trend real activity, perhaps even exacerbated by the confidence-sapping budget deadlock,” Macroeconomics said.

Treasurer Joe Hockey will deliver a budget update in December that will take account of the recent sharp fall in commodity prices. Iron ore sank below $US70 a ton earlier this week, its lowest in five years, and is expected to remain weak.

 Economic Growth Slower

Australia has reported weaker-than-expected economic growth between July and September, due largely to a drop off in mining investment.

Its economy grew 0.3% in the third quarter, compared to the previous quarter, and was up 2.7% year-on-year, according to official numbers.

Economists had expected quarterly growth of 0.7% for the period and year-on-year growth of 3.1%.

The Australian dollar fell to a new four-year low on the news.

Analysts said the gross domestic product (GDP) numbers meant the nation’s economy was growing below trend, and that the decline in mining investment would be a major hurdle for the economy for up to the next two years.

 Behind the numbers

“Australian GDP growth in the third quarter significantly undershot expectations, with shares and the Australian dollar weakening immediately,” Sydney-based CMC Markets analyst Michael McCarthy told the BBC.

But he said markets may see through the weaker reading.

“Recent leading indicators such as capital expenditure and building approvals have shown strength,” Mr McCarthy said.