The Macroeconomic Outlook

This two‐year quarterly forecast from the Access Economics Murphy (AEM) model updates that presented in the 2nd quarter 1992 issue of the Australian Economic Review. The economic recovery is patchy, with only public final demand and housing investment moving forward decisively, but could broaden in 1993, if private business fixed investment begins increasing. It has fallen by a recession‐inducing one‐third since the middle of 1989. GDP growth could rise from a mediocre 2.4 per cent in 1992–93 to a strong 4.3 per cent in 1993–94. Unemployment may remain around 11 per cent for the remainder of 1992–93, before falling to a year‐average level of about 10 per cent in 1993–94. CPI inflation under 2 per cent per annum on a year‐on‐year basis is likely in 1992–93 but, with economic recovery and the flow‐through effects of the depreciation, it is forecast to rise to 4 per cent per annum in 1993–94. The current account deficit is rising with economic recovery, and by 1993‐94 could be 5 per cent of GDP, compared with a sustainable level of 3 to 3.5 per cent. An assessment of the accuracy of the AEM model and government official economic growth forecasts in the recession years of 1990–91 to 1992–93 was conducted, using the forecasts from the Business Review Weekly's panel as a reference point. The high accuracy ranking of the AEM forecasts is consistent with international evidence that the most accurate forecasts are model‐based with judgmental adjustments. The official forecasts met international standards of accuracy from 1978–79 to 1989–90, and the recent fall in their performance is puzzling.