Growth back to normal by 2011, business told

Businesses told to expect financial growth in next two years as economy recovers and business and consumer confidence returns

By Michael House

Australian businesses have been told to expect a slow but stable path to financial growth in the next two years as the economy begins to strengthen and business and consumer confidence returns.

National Australia Bank’s (NAB) senior economist, Spiros Papadopoulos, the worst of the global recession is over.

Speaking at a business seminar in Brisbane this morning, Papadopoulos says while he is confident the growth rate will be back to normal by the end of 2011, it is likely it will remain "sluggish" until the end of the year.

"When you look at consumer and business confidence over the last few months, the actual level [of confident businesses and consumers] are consistent with what we saw during the boom times a couple of years ago," Papadopoulos says.

"It’s been quite remarkable just how strongly business confidence has come back. Earlier this year it was very much a recession, even a depression, type outlook really."

Papadopoulos says the positive outlook has sparked the Australian market’s slow climb to recovery.

"If you look at the next couple of years, we have definitely got a recovery emerging, moving into 2010 and 2011," he says.

According to the NAB economist, the massive cash injections to stimulate economies will lead to gradual growth early next year.

"Although growth is improving [and] although the economy has been stronger than [previously] expected we are still talking about growth of about zero in the second half of this year," Papadopoulos says.

NAB has attributed the sluggish growth to the unemployment rise, and the bank expects the jobless rate to peak in mid 2010 before declining with inflation.

But while many people may expect the Reserve Bank of Australia (RBA) to raise interest rates by years end, Papadopoulos says it is likely this will only happen in June next year.

"We are talking about the unemployment rate rising to seven and a half percent, we are talking about inflation trimming down to 2 percent," he says.

Based on the NAB’s forecast, Papadopoulos says there is no need for the RBA to rush into lifting interest rates in the short term, but adds that it will be necessary to lift rates if signs of recovery continue.

The strength of the Australian dollar is also predicted to increase over the next two years, especially as the US dollar attempts to recover from a recent hammering.

Papadopoulos says the growth in the dollar is also due to increasingly solid growth in China, coupled with a slow down in contraction of the US economy.

"From current levels, we would certainly support a view that the Aussie dollar will be in the high eighties for the next year," he says.

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