Peter Costello

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OECD Expects the Australian Economy to Continue to Strengthen

NO.020

OECD Expects the Australian Economy to Continue to Strengthen

In its latest Economic Outlook, the OECD provides a very positive assessment of the Australian economy, with an outlook for strong economic growth, moderate inflation and falling unemployment.

The OECD forecasts the Australian economy to grow by 3.7 per cent in 2002, significantly stronger than most other advanced economies and the OECD average, with growth increasing to 4.0 per cent in 2003. According to the OECD, a further strengthening in the Australian economy will be aided by "supportive monetary conditions, the improving global environment and the absence of major structural imbalances".

Importantly, strong economic growth is not expected to generate significant price pressures, with inflation forecast to be 2.8 per cent in 2002 and 2.6 per cent in 2003. The OECD attributes the good inflation performance to moderate wages growth and strong productivity growth.

These strong macroeconomic fundamentals are expected to lead to a decline in the unemployment rate to 6.3 per cent in 2003. The current account deficit is expected to increase marginally to 3.9 per cent as a share of GDP in 2003.

The strong outlook for the Australian economy should be supported by the improved global outlook. Following the global weakness last year, the OECD expects economic activity in OECD countries to gradually gather momentum over the course of 2002 and into 2003 as the global recovery broadens.

Although there are still some downside risks to the world outlook, many of the restraining forces have dissipated and most OECD countries are expected to be growing strongly by the second half of 2002. The OECD has revised its forecast of OECD growth upwards from 1.0 per cent to 1.8 per cent in 2002, with growth expected to strengthen to around 3.0 per cent in 2003.

The benefits of labour and product market reforms are evident in Australia's economic performance through the global economic downturn of 2001. These reforms have provided a solid foundation for future economic growth by encouraging a combination of strong growth in productivity, continuing healthy competition, and moderate increases in wages and prices.

CANBERRA
25 April 2002

25 Apr 2002

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