NO.073

OECD EXPECTS ROBUST ECONOMIC GROWTH FOR AUSTRALIA

The OECD’s latest Economic Outlook provides another positive assessment of

the Australian economy, noting that “…economic growth is projected

to remain robust, despite the current farm drought and a likely downturn in

the residential property sector.”

The OECD forecasts Australia’s economy to grow by 3.5 per cent in 2002, increasing

to 3.7 per cent in 2003. This is significantly higher than the average growth

forecast for OECD countries. The OECD expects strong growth to lead to gradual

reductions in the unemployment rate, noting that further decentralisation of

wage bargaining should help to improve employment opportunities and provide

scope to further reduce the unemployment rate.

The OECD also expects inflation to decline over the forecast horizon. The

OECD says that Australia’s recent good inflation performance has been due to

wage moderation and very strong labour productivity growth. The current account

deficit is also expected to decline gradually over the forecast horizon. This

outlook is largely driven by an expected recovery in exports in line with a

forecast pickup in the growth of our major trading partners, as well as a rise

in Australia’s terms of trade.

Although the OECD’s forecasts incorporate an assessment of the effects of

the drought, conditions have deteriorated further over the past couple of months,

with potentially larger effects on GDP growth and the current account than presently

factored into the OECD forecasts.

Despite considerable fiscal and monetary stimulus across the world since late

2001, the OECD considers the prospects for global economic recovery to have

weakened over the last six months. In particular, the OECD notes a number of

downside risks to the global economic outlook, including the continuing uncertainty

arising from financial market volatility and movements in oil prices due to

geo-political tensions.

The OECD sees the world economy recovering at a weaker pace than earlier expected.

It has revised down its forecasts for GDP growth in the OECD area from 1.8 per

cent to 1.5 per cent in 2002 and from 3 per cent to 2.2 per cent in 2003.

However, the OECD expects growth to gradually gather pace, with 3 per cent

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

An updated set of the Government’s economic forecasts will be released in

the Mid Year Economic and Fiscal Outlook (MYEFO).

CANBERRA

21 November 2002