FED: Economy tipped to suffer post Olympics stagnation

AAP General News (Australia)
04-16-1999
FED: Economy tipped to suffer post Olympics stagnation

CANBERRA, April 16 AAP - Australia's economy will stagnate after the Sydney Olympics and
Asia's financial crisis will last another 10 years, the economist who forecast the crisis said
today.

Dr Peter Brain, in his new book Beyond the Meltdown, predicted Australian unemployment
would reach 10 per cent with one million out of work by 2002 and that interest rates would
rise two percentage points.

Dr Brain forecasts the Asian financial crisis, lasting six to 10 years more, will cost
350,000 Australian jobs, either lost or not created, partly because Australia had failed to
build high-technology and information industries to replace the traditional manufacturing
sector.

One-off events like the AMP float had boosted consumer confidence too high, he said.

"What the Asian meltdown will do in terms of its impact on traditional manufacturing, will
accelerate its decline and choke off a lot of opportunities that would have otherwise been
there for growth," Dr Brain, National Institute of Economic and Industry Research executive
director, told ABC Radio.

"Because our manufacturing sector is going to be choked off for growth, because our mining
sector is now facing the problems of (low) commodity prices and is currently reducing
investment and reducing exploration activity, our balance of payments will remain very weak,
in fact will deteriorate further from current levels.

"This will force the government eventually to either increase interest rates by up to, say,
about two percentage points to choke off demand, to bring that current account deficit under
control, or otherwise the economy will just track down of its own volition.

"Either way, growth is going to track down to negligible levels after the Olympics, which
is inevitable given the structural difficulties the Australian economy faces from the Asian
meltdown."

Dr Brain advocates higher interest rates in the short term to curb consumer demand and an
interventionist government industry policy.

"In the longer term the problem will be how to restructure Australian industry to get
investments in the new knowledge industries, to move Australian industry up the value-added
chain and create industries which genuinely operate on a world scale," he said.

AAP fh/sc/bm

KEYWORD: ECONOMY BRAIN LEAD

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