NO.102

OECD UPBEAT ON AUSTRALIAN ECONOMIC PERFORMANCE

The OECD’s latest Economic Outlook provides a glowing assessment

of the Australian economy. The OECD expects a continuation of strong economic

growth over the next two years.

The OECD forecasts the Australian economy to grow by 3.6 per cent in 2004,

in line with the OECD average. This follows three consecutive years where Australia’s

annual economic growth has exceeded that of the OECD area. The OECD forecasts

Australia to grow by 3.8 per cent in 2005 and 3.6 per cent in 2006, stronger

than the OECD average. The forecasts for Australia incorporate some rebalancing

of growth as improving net exports offset a projected weakening in household

consumption and residential investment.

The OECD expects strong economic growth to ‘be accompanied by further

employment gains’. The OECD forecasts the unemployment rate to stay around

5½ per cent. Inflation is expected to remain within the 2 to 3 per cent

medium-term target band. The projected fiscal surpluses for the consolidated

general government sector over coming years are described as ‘cyclically

prudent’.

The OECD mentions some risks to the outlook, such as disappointing rainfall

and rising oil prices. The possibility of an abrupt fall in house prices is

also mentioned as a risk, although the OECD assesses that the probability of

this occurring remains low.

The OECD states that the global economic expansion is projected to continue

over the next two years, albeit at a more moderate pace as the sharp increases

in oil prices affect growth. The OECD has revised up its forecasts for OECD

area GDP growth in 2004 from 3.4 per cent to 3.6 per cent, while growth in 2005

has been revised down from 3.3 per cent to 2.9 per cent. The OECD is projecting

GDP growth across the OECD area of 3.1 per cent in 2006.

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

in the 2004-05 Mid-Year Economic and Fiscal Outlook.

CANBERRA

30 November 2004