Fed: Now Costello says drought matter of very severe concern
By Jim Hanna, Economics Correspondent
CANBERRA, Aug 14 AAP - Less than a month after dismissing the drought's effect on theeconomy, federal Treasurer Peter Costello today described it as a matter of very severeconcern for Australia.
"Well, absolutely drought affects the economy and has an enormous effect on agriculturalproduction," Mr Costello told ABC radio in Longreach.
"Obviously, the drought through western New South Wales and up into Queensland andthrough western Queensland is a matter of very severe concern.
"Obviously, it will also be affecting production, and that is a dreadful thing notjust for the communities concerned but also of course for the country generally."
Last month, Mr Costello said agricultural production was not a large part of Australia'seconomy and the drought would therefore not have much impact on GDP growth.
Today, he sounded almost apologetic.
"Obviously I hope that it rains," he said. "Somebody said that I should do a rain dance,but I think that is beyond the powers of any of us."
Later, Mr Costello told journalists any further stalling of the United States recoverycould hurt Australia's economy.
"If there is concern about the US recovery, that will lead to people downgrading theirforecasts for global growth and that in turn would have an effect on Australia through(lower demand for our) exports," he said.
Upheaval on overseas stock markets has already affected confidence in Australia, withWestpac's monthly survey of consumer sentiment falling to its lowest level in 12 months.
"Clearly, consumers have been unnerved by the collapse in the US sharemarket and thesignificant change in sentiment in global financial markets," Westpac general managereconomics Bill Evans said.
"While Australian consumers are generally not as directly exposed to the global equitymarkets, a feeling of unease is clearly developing among certain groups."
The fall in confidence would be noted by the Reserve Bank of Australia, said Mr Evans,who expects it not to raise interest rates until the middle of next year.
New figures showing modest wage growth also boosted the case to leave interest rates on hold.
Total hourly rates of pay excluding bonuses rose 0.6 per cent in the June quarter,the Australian Bureau of Statistics said.
Wage growth over the past 12 months was steady at 3.1 per cent.
"At these levels, wages growth does not pose upside risks to inflation," HSBC senioreconomist Grant Fitzner said.
Westpac chief economist Nigel Stapledon said wages were not rising fast enough to putpressure on inflation.
"It's clearly not a major concern at this time for the Reserve Bank," Mr Stapledon said.
AAP jph/sw/was/sb
KEYWORD: ECONOMY NIGHTLEAD
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