The OECD Economic Outlook released today provides further evidence that Australia is outperforming the rest of the advanced world, with stronger growth, lower debt and lower deficits than the major advanced economies.
The OECD also points out that unprecedented policy efforts have limited the severity of the downturn and are fostering a recovery, with growth resuming in member economies. However, it clearly cautions that the recovery is likely to be modest, with the global economy held back by substantial headwinds.
The OECD notes that Australia is one of only three OECD economies forecast to grow in 2009, with fiscal and monetary stimulus supporting activity through the worst of the global recession.
The OECD now forecasts Australia to grow by 0.8 per cent in 2009 and 2.4 per cent in 2010, which would mean the Australian economy would still be operating substantially below capacity. This compares to the OECD-wide forecast showing member economies will shrink by 3.5 per cent in 2009, before growing by 1.9 per cent in 2010.
The OECD expects unemployment in Australia to peak at 6.3 per cent in 2010 - far lower than the forecast OECD average peak of 9.1 per cent.
With only a modest global recovery in prospect, OECD-wide unemployment is projected to continue to rise until the end of 2010, with the global crisis leaving an extra 21 million people out of work across the OECD by the end of next year.
The OECD report also confirms that Australian Government finances remain amongst the strongest in the OECD. Australian Government borrowings are the lowest of any OECD economy. Australian Government borrowing is expected to peak as a share of GDP at 18 per cent in 2011-12 - dramatically lower than the 103.5 per cent of GDP gross debt expected for the OECD as a whole.
The OECD notes that full implementation of stimulus measures is necessary to underpin the global recovery. It expressly warns that "a premature withdrawal of the current monetary and fiscal policy stimulus could disrupt the recovery, raise job losses and intensify balance sheet pressures on the private sector."
The Rudd Government's fiscal stimulus was deliberately designed to provide maximum support to the economy at the height of the crisis, and then to gradually withdraw as the economy strengthened.
The OECD has endorsed the Government's planned schedule for withdrawing stimulus in Australia. It notes that "the planned reduction of the federal budgetary stimulus seems to be an appropriate response to the needs of the economy." A more sudden withdrawal of stimulus would hurt small businesses, cause many more jobs losses, and put our economic recovery at risk.
The OECD has also examined the impact of the global recession on growth prospects for member countries. It finds that the near-term adverse impact on Australia's potential output are among the lowest in the OECD. Stimulus, both fiscal and monetary, has meant Australia has avoided the permanent skills and capital destruction that generally accompanies deep downturns and that has meant less permanent damage to our economy.
While Australia has come through the worst of the global recession in a stronger position than other advanced economies, we know that the job is far from finished and the challenges ahead will be just as difficult as those just passed.
The Government remains focused on ensuring the national unity and effort that got Australia through the global crisis is harnessed to secure long term improvements to our economy and to our living standards.