1 am Thursday, 9 April 1998

OECD Economic Outlook 63 Projections

Today the OECD released its latest economic projections, along with an analysis of recent events in Asia and their implications for the world economy. These projections will be incorporated in the OECD Economic Outlook 63, which will be published in June.

The OECD expects that economic growth in Australia over 1998 and 1999 will be stronger than any of the major OECD economies and well above the OECD average.

The OECD forecasts are broadly consistent with those in the Mid-Year Economic and Fiscal Outlook 1997-98. The OECD expects that GDP in Australia will grow by 3.2 per cent in both 1998 and 1999, underpinned by strong domestic demand and despite the sharp slowdown in some of our export markets. Unemployment is projected to decline to around 7 – per cent in 1999, and inflation is forecast to remain low. The current account deficit is forecast to rise to around 5 per cent of GDP in 1998 and to fall to around 4.7 per cent of GDP in 1999.

Given the magnitude of the slowdown in Asia, these forecasts suggest the fundamentals of the Australian economy are very strong.

The OECD says that events in Asia underline the need to continue the Government’s policy direction, including implementing the current fiscal consolidation plans to achieve an underlying budget surplus in 1998-99 and proceeding with reform of the financial system and corporate law.

The OECD forecasts strong growth will continue throughout most of the OECD region, which will provide support for Australian exports. The OECD said, “growth prospects for 1998-99 remain relatively favourable for the OECD area as a whole”. They expect growth of around 2 per cent in both 1998 and 1999, compared to the projections contained in the December Economic Outlook of 2.9 per cent and 2.6 per cent in 1998 and 1999 respectively.

This downward revision is as a result of the deterioration of prospects for Japan and South Korea, which are forecast to experience negative growth in 1998, before returning to positive growth in 1999. Growth in the OECD region is expected to be supported by continued strong growth in North America and a consolidation of the improved growth performance of 1997 in Europe. Overall OECD industrial production growth is forecast to be relatively firm in 1998 and 1999 which will provide support for commodity prices.