29 May 2013

OECD Economic Outlook 93 - May 2013

The OECD has endorsed the Gillard Government's fiscal strategy in its latest Economic Outlook and expects the Australian economy to outperform in the face of a fragile and uneven global recovery.

The OECD highlights the transition underway in the Australian economy, as the mining investment boom shifts towards the export and production phase, and low interest rates support a gradual recovery in non-mining sectors.

While Australia's economic fundamentals remain strong, the OECD highlights the ongoing pressure from the sustained high dollar, and notes the Government has been faced with a 'low level of tax revenue'.

The OECD welcomes the Government's path of fiscal consolidation, noting the Government has 'quite rightly' decided to allow the automatic stabilisers work freely in the near term.

The OECD expects the Australian economy to outperform every single major advanced economy – and the OECD as a whole – over the next two years. In 2013 alone, Australia's growth is expected to be double the average for OECD economies.

The Australian economy is forecast to grow by 2.6 per cent in 2013 and 3.2 per cent in 2014 by the OECD which is broadly consistent with the 2013-14 Budget forecasts.

Along with solid growth, the OECD expects inflation in Australia to remain contained and the unemployment rate to remain low at 5.6 per cent in 2013 and 5.5 per cent in 2014. This is substantially lower than OECD's forecast for unemployment rate across member economies, which is expected to be 8.1 per cent in 2013 and 8.0 per cent in 2014.

The OECD expects the global recovery to be slow and uneven, and has downgraded its forecasts for global growth to 3.1 per cent in 2013 and 4.0 per cent in 2014.

The OECD area as a whole is expected to record a sluggish growth of 1.2 per cent in 2013 before improving to 2.3 per cent in 2014, with emerging economies continuing to drive the vast majority of global growth.

Although the worst crisis risks in the global economy have subsided, risks remain tilted to the downside, particularly in the euro area.

While the transition underway in the Australian economy will not be seamless, the Gillard Government has put in place responsible fiscal settings to support jobs and growth now, while funding the smart investments to secure our future in the Asian Century.