The OECD’s latest Economic Outlook forecasts that economic growth in Australia will accelerate in 2006 and 2007.
The OECD forecasts Australia’s real GDP to grow by 2.6percent in 2005, before picking up to 3.2percent and 3.6percent in 2006 and 2007. Continued strength in business investment and buoyant exports are expected to contribute to the strong growth. In line with strengthening exports, the OECD expects that the current account deficit will narrow to 5.2percent of GDP in 2007.
With higher energy prices, the OECD predicts that inflation will peak at around 3.0percent in 2006 before easing in 2007. The OECD expects inflation to remain consistent with the Reserve Bank’s inflation target. Importantly, the OECD notes that ‘rapid implementation of the planned industrial relations reform would also help [to preserve price stability] as it would promote productivity gains and restrain unit labour cost growth’.
The OECD also notes that the Government has been able to ‘grant substantial personal income tax cuts, business tax relief, increased assistance for families and other social expenditure while keeping a budget surplus’. The projected fiscal surpluses over the coming years are expected to assist in preserving price stability.
The OECD expects that the strong recent performance of the labour market will be sustained, with the unemployment rate remaining well below the current OECD average of 6.5percent.
The OECD notes that GDP growth in the OECD area has remained robust, despite the run-up in oil prices, and has become increasingly balanced. After growing by an expected 2.7percent in 2005, growth across the OECD area is projected to increase slightly to 2.9percent in 2006 and 2007. This positive economic outlook is expected to be underpinned by continued solid growth in the United States, a sustained recovery in Japan and a pick-up in economic activity in the euro area.