11 May 2006Forbes
Prime Minister John Howard has called for an emergency drought summit on Tuesday as climate change and rising interest rates threaten a 10-year economic boom -- and his grip on power. Shaping up as the worst drought since white settlement more than 200 years ago, the 'big dry' is likely to cut agricultural output by 20 pct and GDP by around 0.7 pct, government officials say.'The prolonged drought is having a terrible impact on farming communities across Australia,' Howard said, announcing that he had called the premiers of three of the worst-hit states to a summit on Tuesday.On the same day, the board of the central bank will meet to consider increasing interest rates for a third time in six months to a new six-year high of 6.25 pct as it fights inflationary pressures.Lurking behind these visible threats to the country's rapid economic growth over the past decade is a prediction by Treasurer Peter Costello that one of the main engines of the boom -- commodities -- is running out of steam.All of these issues are putting pressure on a government which faces an election before the end of next year.Howard's announcement of a drought summit came as statistics showed that the country's most significant river system, in the Murray-Darling Basin, was at historic lows after six years of drought.About 30 rivers and hundreds of tributaries run across the basin, which provides for about 70 pct of Australia's irrigated farmlands. Howard will meet the premiers of the states most affected -- New South Wales, Victoria and South Australia.Treasurer Costello said last week it appeared that rural commodities had particularly affected the value of Australia's exports as figures showed the trade gap with the rest of the world had increased to a 646 mln aud deficit.He also warned that the boom in commodities prices was coming to an end.'The increase in commodity prices, the mining boom that was the story of the last couple of years, I don't think will be the story of the next couple of years,' he said.Adding to the pain for Australia's heavily-indebted home-owners is an interest rise factored in as virtually certain by economists after headline inflation reached 3.9 pct, well outside the central bank's 2.0-3.0 pct target range.
