Services exports will be especially important in the third quarter as Australia hosts the Summer Olympic Games in Sydney. This is already factored into our forecast. But the international environment could surprise. The government's worsening political troubles could also lead to further fiscal stimulus, although the administration of the prime minister, John Howard, would be quick to deny this. Labor is riding high in the polls, and a backlash from rural voters who feel ignored by the government is curbing support for the prime minister.
Labor needs to win only six seats from the ruling coalition in the next election to take power.
Although an election does not have to be called until January 2002, the government is already moving to shore up its base by spending more on rural constituencies. Normally, pressure to maintain a balanced budget would constrain the government's profligacy, but a revaluation of the expected revenue from the sale of mobile phone licences may give Mr Howard more cash to spread around. This will only add to growth this year and next. The GST, once again, could play a role. The government remains concerned, however, that businesses and labour unions will take advantage of the GST to push up prices and wages.