Australia stimulus needed for recovery

November 09, 2009 09:29:22 AM

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Withdrawing Australia's government stimulus now would interrupt the recovery underway, Treasurer Wayne Swan said Sunday as he warned the country was not immune to the risks to the global economy.

Swan said the government's 70 billion dollar (64 billion US) stimulus, credited with helping Australia avoid a recession, had already peaked and was gradually winding down.

But he said although the nation had posted 0.6 percent growth in the June quarter -- the best in the developed world -- and maintained relatively low unemployment, the domestic boost was still needed.

"If we were to simply withdraw stimulus that would pull the rug out from under recovery and that would result in far higher unemployment," Swan told the Australian Broadcasting Corporation from London.

"We are not immune from what is going on in the global economy this year or next year."

Swan said while there were some encouraging signs for the world economy, the International Monetary Fund had forecast that the pace of recovery was likely to be sluggish.

"I don't think there's anybody over at the G20 doing victory laps, particularly when you look at the United States' economy where unemployment has hit something like 10 percent plus," he said in reference to the group of 20 leading economies which met in Scotland on Saturday.

"You've got the British economy which has had something like six quarterly contractions in a row. So people here are cautious."

The Australian government has come under pressure to remove the stimulus, particularly after the central Reserve Bank of Australia lifted interest rates from 50-year lows in October and unemployment unexpectedly dropped to 5.7 percent in September.

But Swan said the Reserve Bank was "entirely comfortable with our fiscal policy" and business investment remained weak.

"One of the reasons we've done so well is that many employers out there know that through our stimulus there is a pipeline of activity which they can use to keep workers on and also to invest in capacity," he said.

"And they're depending upon that pipeline."