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Wayne Swann - Source: ONE News / ABC Australia -
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The Australian government is playing down any expectations its mid-year forecast for the Australian economy and a review of its budget position will be all good news on Monday.
There are high expectations the Mid-Year Economic and Fiscal Outlook (MYEFO), due to be released by Treasurer Wayne Swan in Canberra, will reflect an economy that has performed better than expected in the past six months.
Forecasts for growth, unemployment, the budget deficit and government debt are likely to be more positive than predicted in the May budget.
But the outlook won't be all good news, a source inside the treasurer's office warned.
Anyone expecting "a bed of roses" would be disappointed with some aspects of the MYEFO.
Better news on growth and unemployment are a given, but Swan is less optimistic about the government's budget position, saying it has taken "a big hit" from the global recession.
Nevertheless, most economists believe the budget is tracking towards a deficit of about $AU40 billion, instead of the forecast $AU57.6 billion.
Swan also continues to take a cautious view of Australia's economic outlook.
"Challenges remain in areas like business investment and the terms of trade, and this will be reflected in MYEFO as well," he said in his economic note, published on Sunday.
Unemployment appears almost certain to finish the financial year below the predicted 8.25%, while growth will be stronger than the 0.5% contraction predicted in the budget.
The MYEFO is unlikely to revise the budget forecast for inflation - 1.75% - despite signs it may be a looming threat.
Australia's economic performance, in the face of a global financial meltdown and recession, has focussed the central bank's attention on inflation.
While the annual rate of inflation fell to 1.3% during the September quarter - its lowest level in more than 10 years - the underlying rate of 3.50% is outside the Reserve Bank's comfort range.
The bank appears keen to be ahead of the game and the government by moving monetary policy away from the emergency settings of the past year, hoping to head off inflation pressures and a possible housing price bubble.
How keen, will be determined on Tuesday when the bank's board sits down for its monthly meeting.
Economists and the markets are divided on just how far - 25 or 50 basis points - the Reserve will push the cash rate above its present setting of 3.25%.
Data indicating the US economy is coming out of recession may influence the bank to lift the rate by more than September's 25 basis points rise, which brought the official rate off its 49-year low.
The RBA's decision will be announced at 2.30pm AEDT (4:30pm NZT) on Tuesday - 30 minutes before the start of the Melbourne Cup.
