The OECD's latest Economic Outlook provides another positive assessment of the Australian economy. The OECD forecasts that Australia's economy will grow by 3.2 per cent in 2003, increasing to 3.8 per cent in 2004. This is substantially higher than the OECD's average growth forecast for the major industrial countries and for the OECD area as a whole.
The OECD expects conditions in Australia's labour market to remain strong, with the unemployment rate forecast to gradually fall to 5.8 per cent in 2004. However, it also notes that Australia's growth prospects would be improved further by reforms in education, competition, and labour markets ”to encourage more people to participate in the workforce, remain in employment and raise their productivity“. According to the OECD, Australia's recent low inflation rate has been underpinned by wage moderation and strong labour productivity growth. Inflation is expected to remain moderate at around 2.5 per cent, the midpoint of the target band.
In relation to Australia's household sector, the OECD notes that rising real incomes, increasing housing wealth and comparatively low debt servicing ratios will continue to support consumption growth. The OECD expects the household saving ratio to increase and considers current household debt levels to be manageable.
The OECD considers the prospects for global economic recovery to have weakened over the past six months, despite considerable fiscal and monetary stimuli across the world since late 2001. Increased geopolitical tensions, protracted corporate balance sheet imbalances and excess capacity problems have undermined the strength of the economic recovery expected in 2003.
The OECD sees a slow and uncertain global recovery and it has revised down its forecasts for GDP growth in the OECD area from 2.2 per cent to 1.9 per cent in 2003. However, the OECD expects growth to gather pace from late 2003, with a 3 per cent GDP growth forecast for the OECD area as a whole in 2004. The OECD notes that a longer than expected slowdown of the world economy would represent a risk to Australia's rate of growth.
The OECD's recognition of Australia's continuing strong economic performance — despite a relatively weak world economy — is welcome. The OECD's assessment of the risks to the world economic outlook at the moment reinforces the need for careful economic management in Australia. The Government has made the prudent management of the Australian economy and the Commonwealth's finances a priority since 1996 and will continue to do so in the future.