NO.058

OECD UPBEAT ON AUSTRALIA’S ECONOMIC OUTLOOK

The OECD’s latest Economic Outlook forecasts that economic

growth in Australia will continue in 2005 and 2006. The OECD expects that Australia’s

unemployment rate will average around 5 per cent in 2005, well below the OECD

average of 6.7 per cent.

The OECD forecasts Australia’s real GDP to grow by 2.5 per cent in 2005,

and 3.4 per cent in 2006. A pick up in exports and continued high levels of

business investment given “high company profitability, low corporate debt

and buoyant business confidence” are expected to contribute to the stronger

growth in 2006. In line with strengthening exports, the OECD expects the current

account deficit to narrow over the next two years to 4.9 per cent of GDP in

2006.

Economic growth across OECD member countries is forecast to strengthen, after

slowing over the course of 2004 due to rising and volatile oil prices. GDP growth

across the OECD area is projected to be 2.6 per cent in 2005 and 2.8 per cent

in 2006. Growth is also expected to become more balanced, reflecting an anticipated

strengthening in investment in Japan and the euro area.

The OECD projects that Australia will continue to run a fiscal surplus in

2005 and 2006 compared to the average deficit of OECD countries at around 3

per cent of GDP for those years.

The OECD notes that inflation expectations are contained and projects no change

to monetary policy.

The OECD highlights the importance of continuing structural reform to maintain

Australia’s strong economic performance, in particular labour market reform

and improving labour market participation. In this year’s Budget, the

Government laid the foundations for improving participation with its $3.6 billion

Welfare to Work package and the Government will be accelerating labour market

reform with the change in the composition of the Senate on 1 July 2005.

CANBERRA

24 May 2005