OECD EXPECTS AUSTRALIAN ECONOMIC GROWTH TO INCREASE IN 2004

The OECD’s latest Economic Outlook provides another

positive assessment of the Australian economy. The OECD

forecasts that Australia’s economy will grow by 3.2 per cent in

2003, increasing to 3.8 per cent in 2004. This is substantially

higher than the OECD’s average growth forecast for the major

industrial countries and for the OECD area as a whole.

The OECD expects conditions in Australia’s labour market to

remain strong, with the unemployment rate forecast to gradually

fall to 5.8 per cent in 2004. However, it also notes that

Australia’s growth prospects would be improved further by

reforms in education, competition, and labour markets ”to

encourage more people to participate in the workforce, remain in

employment and raise their productivity“. According to the

OECD, Australia’s recent low inflation rate has been underpinned

by wage moderation and strong labour productivity growth.

Inflation is expected to remain moderate at around 2.5 per cent,

the midpoint of the target band.

In relation to Australia’s household sector, the OECD notes

that rising real incomes, increasing housing wealth and

comparatively low debt servicing ratios will continue to support

consumption growth. The OECD expects the household saving ratio

to increase and considers current household debt levels to be

manageable.

The OECD considers the prospects for global economic recovery

to have weakened over the past six months, despite considerable

fiscal and monetary stimuli across the world since late 2001.

Increased geopolitical tensions, protracted corporate balance

sheet imbalances and excess capacity problems have undermined

the strength of the economic recovery expected in 2003.

The OECD sees a slow and uncertain global recovery and it has

revised down its forecasts for GDP growth in the OECD area from

2.2 per cent to 1.9 per cent in 2003. However, the OECD expects

growth to gather pace from late 2003, with a 3 per cent GDP

growth forecast for the OECD area as a whole in 2004. The OECD

notes that a longer than expected slowdown of the world economy

would represent a risk to Australia’s rate of growth.

The OECD’s recognition of Australia’s continuing strong

economic performance — despite a relatively weak world

economy — is welcome. The OECD’s assessment of the risks

to the world economic outlook at the moment reinforces the need

for careful economic management in Australia. The Government

has made the prudent management of the Australian economy and

the Commonwealth’s finances a priority since 1996 and will

continue to do so in the future.

CANBERRA

24 April 2003