NO.020

OECD Expects the Australian Economy to Continue to Strengthen

In its latest Economic Outlook, the OECD provides a very positive assessment

of the Australian economy, with an outlook for strong economic growth, moderate

inflation and falling unemployment.

The OECD forecasts the Australian economy to grow by 3.7 per cent in 2002,

significantly stronger than most other advanced economies and the OECD average,

with growth increasing to 4.0 per cent in 2003. According to the OECD, a further

strengthening in the Australian economy will be aided by “supportive monetary

conditions, the improving global environment and the absence of major structural

imbalances”.

Importantly, strong economic growth is not expected to generate significant

price pressures, with inflation forecast to be 2.8 per cent in 2002 and 2.6

per cent in 2003. The OECD attributes the good inflation performance to moderate

wages growth and strong productivity growth.

These strong macroeconomic fundamentals are expected to lead to a decline in

the unemployment rate to 6.3 per cent in 2003. The current account

deficit is expected to increase marginally to 3.9 per cent as a share

of GDP in 2003.

The strong outlook for the Australian economy should be supported by the improved

global outlook. Following the global weakness last year, the OECD expects economic

activity in OECD countries to gradually gather momentum over the course of 2002

and into 2003 as the global recovery broadens.

Although there are still some downside risks to the world outlook, many of

the restraining forces have dissipated and most OECD countries are expected

to be growing strongly by the second half of 2002. The OECD has revised its

forecast of OECD growth upwards from 1.0 per cent to 1.8 per cent

in 2002, with growth expected to strengthen to around 3.0 per cent in 2003.

The benefits of labour and product market reforms are evident in Australia’s

economic performance through the global economic downturn of 2001. These reforms

have provided a solid foundation for future economic growth by encouraging a

combination of strong growth in productivity, continuing healthy competition,

and moderate increases in wages and prices.

CANBERRA

25 April 2002