The OECD’s latest Economic Outlook provides a glowing assessment of the Australian economy. The OECD expects a continuation of strong economic growth over the next two years.
The OECD forecasts the Australian economy to grow by 3.6 per cent in 2004, in line with the OECD average. This follows three consecutive years where Australia’s annual economic growth has exceeded that of the OECD area. The OECD forecasts Australia to grow by 3.8 per cent in 2005 and 3.6 per cent in 2006, stronger than the OECD average. The forecasts for Australia incorporate some rebalancing of growth as improving net exports offset a projected weakening in household consumption and residential investment.
The OECD expects strong economic growth to ‘be accompanied by further employment gains’. The OECD forecasts the unemployment rate to stay around 5½ per cent. Inflation is expected to remain within the 2 to 3 per cent medium-term target band. The projected fiscal surpluses for the consolidated general government sector over coming years are described as ‘cyclically prudent’.
The OECD mentions some risks to the outlook, such as disappointing rainfall and rising oil prices. The possibility of an abrupt fall in house prices is also mentioned as a risk, although the OECD assesses that the probability of this occurring remains low.
The OECD states that the global economic expansion is projected to continue over the next two years, albeit at a more moderate pace as the sharp increases in oil prices affect growth. The OECD has revised up its forecasts for OECD area GDP growth in 2004 from 3.4 per cent to 3.6 per cent, while growth in 2005 has been revised down from 3.3 per cent to 2.9 per cent. The OECD is projecting GDP growth across the OECD area of 3.1 per cent in 2006.
An updated set of the Government’s economic forecasts will be released in the 2004-05 Mid-Year Economic and Fiscal Outlook.