AUSTRALIA'S KEATING CHANGES ECONOMIC FORECASTS Domestic demand is now expected to make no contribution to Australian economic growth in fiscal 1986/87, ending June 30, while net exports will account for all of the overall increase, Treasurer Paul Keating said here. However, he did not say in his speech to the Economic Planning Advisory Council (EPAC) if the forecast 2.25 pct rise in gross domestic product (gdp) had been revised. But Keating said domestic demand could fall slightly this financial year and net export growth will provide the total source of gdp growth. The August budget had forecast domestic demand would contribute 0.75 percentage points to non-farm gdp growth of 2.5 pct while net exports would account for 1.75 points. Keating said the overall impact of the changed economic parameters is welcome as it appears to have contributed to a slightly more rapid correction in the current account deficit than first anticipated. "The government initially forecast a current account deficit for 1986/87 of 14.75 billion -- our present expectation is that the result will be somewhat lower, around 14 billion," he said. Partial indicators released since the last meeting of EPAC in December indicate that the 1986/87 budget strategy is broadly on track, Keating said. "They indicate that domestic demand has been a little more sluggish than was expected at budget time," he said. "On the other hand, net exports seem to be expanding by more than expected at budget time, and this is underpinning growth in domestic production and employment." Keating said it now seems likely that the 1986/87 inflation rate will exceed the budget forecast of eight pct. "Nevertheless, there is likely to be a marked slowing in inflation over coming quarters as depreciation and budgetary effects wane," he said. Keating said the government expects economic growth to pick up moderately in 1987/88 due to a further significant rise in net exports and a very moderate but positive contribution from private domestic demand. He said domestic demand growth will be due to a strengthening in real household disposable income. The moderate rise in economic growth next financial year should be sufficient to sustain employment growth at a level broadly equivalent to that of the current fiscal year. "The current account deficit will continue to show improvement in 1987/88," Keating said. "As the impact of the exchange rate depreciations of recent years recede further, and given continued effective wage restraint, inflation should moderate markedly in 1987/88," he said.