AUSTRALIAN GOVERNMENT MUST CUT SPENDING, ANZ SAYS
The government must announce harsh cuts
in spending in its May 14 economic statement if it is to give
an adequate response to Australia's economic problems, the ANZ
Banking Group Ltd <ANZA.S> said.
    Cuts of two billion dlrs would be insufficient against the
backdrop of a 12 billion dlr government deficit and a 14
billion dlr current account deficit, it said in its monthly
Business Indicators publication.
    "For the past two years, the government has struggled with
an economic reality that demands measures beyond those which it
sees as politically practicable," it said.
    The political climate meant there would be a continued
over-reliance on monetary policy to hold the exchange rate and
maintain confidence in economic management, ANZ said.
    "The cost of this approach is that the much-needed revival
of business investment will be further postponed," it said.
    The economy was now on a modest growth upswing boosted by
export and import-replacement industries which had created a
false suggestion that the worst adjustments to the balance of
payments crisis were past. "Unfortunately, successful adjustment
to Australia's deep-seated economic problems remains a
long-term process," it said.
    In its economic forecasts, ANZ said it expected moderate
overall economic growth with gross domestic product (GDP)
rising 2.7 pct this year and 2.4 pct in 1988.
    The current account deficit would narrow to five pct of GDP
this year and 4.3 pct in 1988 and net foreign debt would grow
strongly from 81 billion at the end of 1986 to 97.2 billion at
end-1987 and 110.3 billion a year later.
    Inflation would fall to 8.5 pct in 1987 and 7.5 pct in 1988
from 8.9 pct in 1986 and further falls in real wages were
expected, ANZ said.
 REUTER
