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 RBAs 2 to 3 per cent inflation target band". The OECD also expects unemployment to resume its downward trend over 2002. Australias 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 Australias impressive economic performance over recent years, recording very strong growth with low inflation.