NO.030

In its latest Economic Outlook, the OECD is forecasting economic growth of 2 per cent

for Australia in 2001 against a background of weaker global economic activity, with OECD

area growth expected to be 2 per cent in 2001.

Given the absence of major imbalances in the Australian economy, the OECD expects the

slowdown to be temporary, forecasting a solid rebound in economic growth of 3.8 per cent

in 2002.

The OECD expects the very solid rebound in Australian economic growth to be combined

with low consumer prices, with inflation over 2001-02 expected to “stay comfortably

within the RBA’s 2 to 3 per cent inflation target band”. The OECD also expects

unemployment to resume its downward trend over 2002. Australia’s current account

deficit is expected to continue to decline over the forecast period, to average

2 per cent of GDP in 2002.

The world slowdown has been driven by a sharp downturn in the US and continued weakness

in the Japanese economy, which has adversely affected other Asian economies. The outlook

for Europe remains solid.

The OECD notes that “the forces putting downward pressure on growth are projected

to dissipate during the current half-year” and that with the exception of Japan, a

moderate recovery is projected to take hold later this year.

The OECD notes that in Australia, “company profitability is strong and corporate

balance sheets are in good shape” which should support investment. Continued export

market growth and a competitive exchange rate are expected to see exports “remain a

major engine of growth”. The OECD also notes that the tax reform package of 1 July

2000 provides substantial income tax cuts and welfare benefit increases in fiscal year

2000-01.

The OECD forecast follows Australia’s impressive economic performance over recent

years, recording very strong growth with low inflation.

 CANBERRA

3 May 2001