The OECD's latest Economic Outlook paints picture of solid growth, but it also confirms the scope of the inflation challenge the Rudd Government has inherited and the difficult long-term task ahead.
The report underscores the importance of the Government's capacity-building agenda, and particularly our plans to invest in skills and infrastructure for the future.
The OECD forecasts Australia's real GDP to grow by 4¼ per cent in both 2007, moderating to 3½ per cent in 2008 and 3 per cent in 2009. Growth in investment and household consumption is forecast to moderate from current strong levels, which is expected to be partially offset by an improvement in net exports.
The OECD draws attention to long-term inflationary pressures in the economy, with underlying inflation near the top of the Reserve Bank's target band of 2 to 3 per cent.
The Government is alert to the risks of higher inflation and addressing inflationary pressures is our number one priority.
Our policy agenda is focused squarely on expanding the long-term productive capacity of the economy by lifting labour force participation, investing in skills and addressing infrastructure bottlenecks.
The Government is also committed to maintaining prudent fiscal policy and fully supports the independence of the Reserve Bank and its inflation targeting regime.
In terms of economic activity across the OECD more broadly, the Economic Outlook notes that despite recent financial turmoil, cooling housing markets and higher oil prices, growth has remained resilient.
Despite this, the OECD warns risks to the outlook remain, namely renewed turbulence in financial markets; potential impacts of higher costs and lower availability of credit; a sharp decline in house prices or housing investment; and long-standing concerns around large global imbalances and the inflationary impacts of persistently high oil prices.