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Growth sluggish, warns Henry

Bullish entrepreneurs looking at a recovering economy for growth opportunities should note the words of caution coming from treasury secretary, Ken Henry speaking at a Brisbane lunch yesterday. Henry warned that the impact of the stimulus package was estimated to have reached its peak in the June quarter and would slowly diminish as private activity […]
SmartCompany
SmartCompany

Bullish entrepreneurs looking at a recovering economy for growth opportunities should note the words of caution coming from treasury secretary, Ken Henry speaking at a Brisbane lunch yesterday.

Henry warned that the impact of the stimulus package was estimated to have reached its peak in the June quarter and would slowly diminish as private activity began to pick up. “The fiscal stimulus has been designed so that it withdraws gradually having a reduced impact on growth going forward,” he says.

However, he also urged caution against the latest upgrades by market economists and observers to domestic growth forecasts.

“Even with stimulus measures in place and taking into account the run of recent good economic news, growth is still expected to be sluggish going forward,” he says.

“The stimulus was needed just so the economy could reach below trend growth in 2009-10 and 2010-11. The nation would be operating significantly below capacity for some time after that,” he says.

He also backed the Rudd’s Government’s stimulus package saying any scaling back could stall the economic recovery and lead to higher unemployment, saying that the stimulus package actually prevented a recession.

“We estimate that were it not for the fiscal stimulus measures the economy would have contracted in each of the December, March and June quarters with GDP falling by 1.3% over the year.”

Any signs of recovery were tentative. Business conditions remain challenging despite the stimulus and strong exports to China. “A rebound in private investment, particularly business investment, is critical to any sustained recovery but the outlook for business investment remains very uncertain,” he says.

It’s a warning to all entrepreneurs.