NO.103

OECD PRESENTS A FAVOURABLE OUTLOOK FOR THE AUSTRALIAN ECONOMY

The OECD’s latest Economic Outlook forecasts that economic growth

in Australia will accelerate in 2006 and 2007.

The OECD forecasts Australia’s real GDP to grow by 2.6percent in 2005,

before picking up to 3.2percent and 3.6percent in 2006 and 2007. Continued

strength in business investment and buoyant exports are expected to contribute

to the strong growth. In line with strengthening exports, the OECD expects that

the current account deficit will narrow to 5.2percent of GDP in 2007.

With higher energy prices, the OECD predicts that inflation will peak at around

3.0percent in 2006 before easing in 2007. The OECD expects inflation to remain

consistent with the Reserve Bank’s inflation target. Importantly, the

OECD notes that ‘rapid implementation of the planned industrial relations

reform would also help [to preserve price stability] as it would promote productivity

gains and restrain unit labour cost growth’.

The OECD also notes that the Government has been able to ‘grant substantial

personal income tax cuts, business tax relief, increased assistance for families

and other social expenditure while keeping a budget surplus’. The projected

fiscal surpluses over the coming years are expected to assist in preserving

price stability.

The OECD expects that the strong recent performance of the labour market will

be sustained, with the unemployment rate remaining well below the current OECD

average of 6.5percent.

The OECD notes that GDP growth in the OECD area has remained robust, despite

the run-up in oil prices, and has become increasingly balanced. After growing

by an expected 2.7percent in 2005, growth across the OECD area is projected

to increase slightly to 2.9percent in 2006 and 2007. This positive economic

outlook is expected to be underpinned by continued solid growth in the United

States, a sustained recovery in Japan and a pick-up in economic activity in

the euro area.

CANBERRA

29 November 2005

Contact: David Alexander

02 6277 7340