Prospects for the Australian Economy and the Impact of the Asian Crisis

The purpose of this article is to provide medium-term forecasts for the Australian economy and to examine the impact of the Asian financial crisis on these forecasts. The article comprises four sections with a conclusion. The first section contains our base-case forecasts covering the fourteen-year period 1996-97 to 2009-10. These reflect our best guess about developments in the Australian economy given the Asian crisis. The next three sections focus on analysing the mechanisms by which the Asian crisis could impact on Australia and the possible size of such impacts. The second section presents projections of the effects on Australia's trading environment of the crisis. Following this, in the next section we examine the impact on Australia of the likely adverse shift in the terms of trade. The following section presents what we label our worst-case scenario, in which we examine the impact of a fall in confidence in Australia by overseas investors, and finally concluding comments are presented