TREASURER

NO.114

OECD ECONOMIC OUTLOOK 64 PROJECTIONS

The OECD projects Australia’s economic growth over the next two years

to exceed that of the United States and the European Union and to be well above

the OECD average.

The favourable assessment by the OECD follows the strong endorsement of Australia’s

economic management by the IMF, details of which I released yesterday.

The OECD today released its latest economic projections, along with an analysis

of recent events in the world economy. These projections will be incorporated

in the OECD Economic Outlook 64, which will be published in December.

The OECD projections are broadly consistent with the forecasts contained in

the Pre-Election Economic and Fiscal Outlook. The OECD projects that GDP in

Australia will grow by 3.5 per cent in 1998, 2.5 per cent

in 1999 and 2.7 per cent in 2000, underpinned by low interest rates

and a sound budget position. The OECD notes that Australian exporters have

been successful in redirecting products to more buoyant markets outside Asia,

aided by a boost to competitiveness from the lower exchange rate. The unemployment

rate is projected to remain around 8 per cent, and inflation is projected

to increase slightly but remain consistent with the RBA’s medium-term

target range. The current account deficit is projected to fall from 5 per cent

of GDP in 1998 to around 5 per cent in 2000.

These projections highlight the fact that the Australian economy is performing

strongly compared with other industrial economies, despite the effects of the

Asian financial and economic crisis, and the more general global financial

turbulence and uncertain economic outlook.

Importantly, the OECD acknowledges the Government’s achievement in repairing

Commonwealth finances and returning the Budget to surplus. Furthermore, the

OECD’s fiscal outlook for Australia is broadly consistent with that presented

in the PEFO; that is, for further surpluses over the next few years, even after

the introduction of the tax reform package.

The OECD notes that most member economies outside the Asian region, other than

the Czech Republic and New Zealand, have performed well. However, financial

turmoil is expected to result in a slowdown from current rates of economic

growth. The OECD now projects GDP growth for the OECD region to slow, from

above 3 per cent in 1997 to about 2 in 1998 and then to 1- per cent

in 1999, before recovering to around 2 per cent in 2000.

The OECD stressed the need for member countries to refrain from resorting to

protectionist measures, noting the importance of OECD markets remaining open

to exports of emerging countries affected by the crisis.