The expected reduction of inflation due to the current slowdown, along with the need to preserve the stability of the financial system, militates for looser monetary conditions. The recent budget measures, made possible by the significant fiscal leeway built in the previous years, will also support activity, although their effectiveness might be limited if confidence is not restored. It is important for the ongoing reform of industrial relations to preserve labour-market flexibility.
Australia: Weaker growth
GDP growth could well weaken from 2.5 % in 2008 to around 1.75 % in 2009 before picking up to 2.75 % in 2010. This would still imply that, despite the depressed international environment, the impact of the financial crisis and the fall in the terms of trade should be relatively contained. Unemployment is likely to increase, however, and inflation may dip below 3% in 2010.
Economic data
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