* Australia sees hopeful signs of beating budget forecasts
* Potential to exit govt guarantee for banks by raising fee
* But Finance Minister still wary of current account deficit (Adds quotes, background)
By Mark Bendeich
SYDNEY, July 13 (Reuters) - Australia sees signs that its economy and government finances will fare better than official forecasts, the finance minister said on Monday, holding out hopes that the budget deficit might already be smaller than expected.
Lindsay Tanner said it was too early to talk about upgrading government forecasts made only two months ago, noting that global economic conditions could still take a turn for the worse, but he painted an optimistic, if cautious, outlook for the economy.
"Whether they will be better, time will tell," he told Reuters Financial Television. "Certainly there have been some hopeful signs in recent data that that could be the case, but it's way too early to make that assessment and make that call." Australia is one of a few rich nations to have so far avoided recession, to the surprise of many offshore economists, with key economic indicators suggesting that huge fiscal stimulus has succeeded in holding up consumption against all the odds.
Its under-competitive banking system, and the government's blanket guarantee on banks' wholesale funding, have also acted as a kind of circuit-breaker for the economy, insulating it from the financial storms that tore across the United States and Europe.
The government, though, handed down a budget in May that forecast unemployment to hit a 15-year high of 8.5 percent in the year to end-June 2011, the economy to shrink 0.5 percent in 2009-10 and for gross government debt to balloon to a record high of A$310 billion ($240 billion) by 2012-13.
But some economists now believe several key budget forecasts are too bearish and expect, for example, the jobless rate to peak at well below 8 percent in the current economic downturn. It stood at 5.8 percent in June, with the pace of increase slowing.
Economists are also re-examining the government's forecasts for underlying deficits of around A$32 billion and A$58 billion in 2008-09 and 2009-10, with influential economics commentator Ross Gittins writing in the Sydney Morning Herald on Monday that the 2008-09 deficit was likely to be much smaller than forecast.
"It's too early to have a sense of what the outcome for 2008-09 fiscal year will be," Finance Minister Tanner said.
But he added: "I would hope that it might be stronger than that (forecast) because every dollar that does not eventuate as a deficit figure of course is a dollar we don't have to borrow."
While government deficits might turn out to be smaller than forecast, Tanner is concerned about Australia's overall savings shortfall, describing the current account deficit as a major vulnerability. The deficit is forecast at 5.25 percent of gross domestic product in 2009-10, high among developed nations.
Much of that deficit is financed by foreigners lending short-term funds to local banks which then on-lend to local borrowers, including the voracious home-mortgage market which has also held up well, supported by government incentives to borrow.
But Tanner denied the government's guarantee of banks' offshore funding had become a crutch for local lenders and said the guarantee could be quickly wound back by raising the fee the government charges for insuring these liabilities.
"If at any point there is a need to accelerate and exit (the guarantee)...the government retains the capacity to change the pricing in order to do that," Tanner said, though he stressed there was no current timetable for dropping the guarantee. ($1=1.286 Australian Dollar) (Reporting by Mark Bendeich; Editing by Kazunori Takada)