Budget Boost As Profits Hit Record

The Government's gamble on strong growth and a dramatic improvement in business investment came a step closer to paying off yesterday with figures showing company profits and consumer confidence surging to record levels.

According to the latest figures from the Bureau of Statistics, company profits before tax rose 34 per cent in the March quarter, the fastest growth in almost eight years.

A sharp jump in profits was enjoyed across all sectors except mining, due to increasing demand as well as lower costs.

Adding to the robust picture of the country's business sector, figures released yesterday by the Westpac Bank showed consumer confidence was at its highest level in more than 30 years.

The Westpac Melbourne Institute Index of Consumer Confidence rose almost 2 per cent in May, passing its previous high reached 10 years ago.

"Consumers are very optimistic about the outlook for the next 12 months,"Westpac's chief economist, Mr Bill Evans, said.

"While typically more sceptical about the long term, currently more consumers expect good times over the next five years than in any survey since March 1975."

The surge in consumer confidence and company profits augurs well for the Government's growth forecasts for next financial year, underpinned by strong consumer spending and business investment.

The figures follow a sharp increase in retail sales for the March quarter, providing some indication the economy has accelerated in the first quarter of 1994.

Economists now expect a rise in gross domestic product of between 1 per cent and as high as 2 per cent in the March quarter.

The March quarter national accounts, due at the beginning of June, are shaping up to show the economy is growing by at least 4.5 per cent over the year.

This would be higher than the Government's estimate in the Budget of 4 per cent growth in the current financial year and would keep the Government on track to achieving 4.5 per cent growth next financial year.

Other figures released by the bureau yesterday showed the housing market had slowed to a more modest rate of growth.

The number of home loans approved dropped 3 per cent in seasonally adjusted terms in March, but this still meant the number of home loans rose 28 per cent during the year to March.

The housing market has been seen as the one potential trouble spot in the economy. Sustained strong demand for housing during the past 2 1/2 years had raised concerns that housing prices could start to take off, creating inflationary pressures.

But the slowdown in home loan approvals in the March quarter has eased fears of the sector overheating.

The Minister for Housing and Deputy Prime Minister, Mr Howe, said yesterday that the figures were positive.

The housing statistics had confirmed that lending peaked in December "as the number of new loans begin now to return to more sustainable levels".

With the economy showing signs that it has taken off in the first quarter of this year, there may be renewed concerns about inflation.

Financial markets were more subdued yesterday, with long-term market interest rates rising slightly after falling sharply the previous day. The dollar was slightly weaker.