Overall economic growth

The Queensland economy is estimated to expand by 3¾% in 2007-08 and exceed growth nationally, forecast at 3½%, for the 12th consecutive year. Growth in domestic demand in Queensland is estimated to remain strong, at 6% in 2007-08, but is expected to be partly offset by an ongoing detraction from economic growth by the trade sector. Consumer spending and investment are estimated to drive growth in domestic demand in 2007-08. After easing for three consecutive years, growth in household consumption is estimated to strengthen to 5¼% in 2007-08. This partly reflects the lagged impact of a recovery in housing activity in 2006-07 on purchases of household goods and services. A re-acceleration in house price growth has also supported a rebound in discretionary spending on retail items and consumer durables. In response to an economy running near

full capacity, business investment is estimated to rise further. However, the pace of growth is expected to slow noticeably from earlier in the cycle, due to the completion of a number of significant projects. Largely reflecting increases in transport, water and energy investment, the public sector is estimated to make the largest contribution to growth in the infrastructure base in 2007-08.

Nevertheless, a significant increase in lending rates is estimated to negatively affect other sectors of the domestic economy. While their adverse affect on disposable incomes and consumer spending has been partially offset by income tax cuts in 2007-08, the rise in mortgage interest rates is estimated to cause dwelling investment to decline for the first time since 2000-01, when the GST was introduced. The economy, and the trade sector in particular, has also absorbed a range of adverse external and domestic shocks since late 2007. Flooding, the effects of port and rail capacity upgrades, as well as mine maintenance and expansions temporarily disrupted coal and base metal exports in 2007-08. Improved rainfall also encouraged herd rebuilding, with a resultant decline in beef exports. An appreciation in the A$, combined with a deterioration in global economic and financial conditions, has also suppressed tourism and other services exports in 2007-08. As a result, the detraction from economic growth by the trade sector is estimated to widen in 2007-08.

Growth in the Queensland economy is forecast to accelerate slightly to 4¼% in 2008-09,in contrast to an anticipated easing in national growth to 2¾%. A significant strengthening in exports growth, combined with stronger growth in business investment,is anticipated to more than offset an easing in growth in consumer demand, facilitating some rebalancing in the composition of economic growth. Additional income tax cuts and continued growth in wages are anticipated to support growth in disposable incomes. However, growth in consumption is forecast to ease, in response to lower levels of housing activity in 2007-08, anticipated slower growth in household wealth and elevated petrol prices. Despite higher borrowing costs and subdued equity prices, business investment is forecast to rise further in 2008-09,reflecting ongoing high levels of capacity utilisation. A surge in the terms of trade is forecast to drive an additional wave of investment in mining and metals processing, while limited office space has resulted in the planning of several major commercial projects.

While world economic growth is anticipated to slow, improved domestic supply

conditions are forecast to lead to a significant recovery in exports. The completion of several port and rail expansions, as well as mine and refinery upgrades, should benefit coal and base metal exports, while improved rainfall should lead to a recovery in crop exports. As a result, overall exports growth is forecast to strengthen to a four-year high of 4¼% in 2008-09.