The OECD’s latest Economic Outlook forecasts that economic growth in Australia will continue in 2005 and 2006. The OECD expects that Australia’s unemployment rate will average around 5 per cent in 2005, well below the OECD average of 6.7 per cent.
The OECD forecasts Australia’s real GDP to grow by 2.5 per cent in 2005, and 3.4 per cent in 2006. A pick up in exports and continued high levels of business investment given “high company profitability, low corporate debt and buoyant business confidence” are expected to contribute to the stronger growth in 2006. In line with strengthening exports, the OECD expects the current account deficit to narrow over the next two years to 4.9 per cent of GDP in 2006.
Economic growth across OECD member countries is forecast to strengthen, after slowing over the course of 2004 due to rising and volatile oil prices. GDP growth across the OECD area is projected to be 2.6 per cent in 2005 and 2.8 per cent in 2006. Growth is also expected to become more balanced, reflecting an anticipated strengthening in investment in Japan and the euro area.
The OECD projects that Australia will continue to run a fiscal surplus in 2005 and 2006 compared to the average deficit of OECD countries at around 3 per cent of GDP for those years.
The OECD notes that inflation expectations are contained and projects no change to monetary policy.
The OECD highlights the importance of continuing structural reform to maintain Australia’s strong economic performance, in particular labour market reform and improving labour market participation. In this year’s Budget, the Government laid the foundations for improving participation with its $3.6 billion Welfare to Work package and the Government will be accelerating labour market reform with the change in the composition of the Senate on 1 July 2005.