Treasury ups jobs forecast. Watch inflation and rates.

Federal Treasury has increased its growth forecast for the Australian economy in 2000 – 2001 to 3.75%, and with it the good news that unemployment is due to fall to 6.75%.

The Government's mid year economic review confirmed the upbeat outlook on the Australian economy, also increasing growth forecasts for the current year to 3.5%. The Treasurer Peter Costello declared that the Asian economies were on the mend, and that Australia needed to make further significant structural changes to the labour market.

As far as inflation and interest rates are concerned, Mr. Costello indicated a target inflation rate for 2000 – 2001 at 2.5%, in the middle of the oft quoted range of 2 – 3%, and significantly well above the current level which
still rests under 2%.

If all this comes to pass, and given Treasury's conservative nature we have no doubts that it will, it will be great news for the economy. However,there will undoubtedly be two or possibly three increases in monetary policy along the way.

Nothing that the prudent have not already factored in, but for those who haven't, expect small and what RBA governor Ian Macfarlane calls ‘timely' rate increases over the next 3 to 12 months. Our guess is for 0.25% each time, with the first unlikely before the first quarter of the new millenium.

Happy New Year!