The Macroeconomic Outlook

A slow recovery is expected from the current recession. Since reaching a trough in the September quarter of 1990, real gross domestic product (GDP) has followed a flat path which is likely to continue through to the September quarter of 1991. A slow recovery may then commence in the December quarter of 1991. This is consistent with real GDP growth of ‐0.9 per cent in 1990‐91 followed by 2.4 per cent in 1991‐92 and around 3 per cent per annum to the mid‐ 1990s compared with ‘normal’ growth of 2.5 per cent per annum. This recovery is likely to see the unemployment rate at over 10 per cent for most of 1991‐92, before moving to around 8 per cent by the mid‐1990s. Inflation may fall sharply from a peak of 8.0 per cent in 1989‐90 to a trough of 3 to 4 per cent in 199 1–92, due to the recession and movements in oil prices. With a slow recovery, inflation may increase to 4 to 5 per cent per annum in the medium term. The current account deficit has fallen from 5.9 per cent of GDP in 1989‐90 to a likely level of 4.1 per cent in 1990‐91, but part of this gain is cyclical rather than structural. Thus the deficit is expected to increase to around 5 per cent during recovery and remain flat to the mid‐ 1990s, implying steady increases in the ratio of foreign debt to GDP. Looser monetary policy would erode part of the forecast sustained reduction in inflation. Looser fiscal policy would lead to a higher current account deficit.