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OECD recovery warningAUSTRALIA is escaping the global recession more lightly than any other advanced country, but budget forecasts of a rapid bounce-back in growth are unlikely to be realised.
The Paris-based OECD said that even with lower growth, Australia's public sector debt is sustainable and gives the government scope for further stimulus spending next year if needed.
The OECD's findings, contained in its latest review of the global economy, were seized on by Wayne Swan as vindication of the government's economic strategy.
"The report confirms that Australia has the strongest performing economy in the OECD, with lower debt and lower deficits than any major advanced economy," the Treasurer said.
However, the OECD has now become the second major institution, after the International Monetary Fund, to cast doubt on Treasury's budget forecast that the economy would bounce back from the recession to record seven years of growth averaging 4 per cent from 2011 onwards -- starting with two years of 4.5 per cent growth.
The OECD's medium-term projections suggest that growth will average only 3.2 per cent over that period, slightly ahead of the OECD average of 2.7 per cent.
Body: Excluding the catch-up as idled business is brought back into production, it estimates Australia's maximum potential growth is only 2.4 per cent. The IMF's global economic outlook released in May suggested Australia would struggle to achieve growth of 3 per cent out to 2014.
Where Treasury has assumed confidence will return as rapidly as in the past two recessions, the OECD's acting chief economist, Jorgen Elmeskov, said the recovery was, "likely to be both weak and fragile for some time, and the negative economic and social consequences of the crisis will be long-lasting".
"Thanks to a strong economic policy effort, an even darker scenario seems to have been avoided," he said.
The OECD expects the advanced economies of the world will contract 4.1 per cent this year (marginally better than its last estimate in March), and to return to a weak 0.7 per cent growth next year.
Its forecasts for Australia show the economy will be stronger than expected by Treasury or the Reserve Bank this year, but weaker from next year onwards.
The economy will contract by 0.4 per cent this year, compared with the RBA's forecast of a 1 per cent fall in the year to December.
However, next year, the OECD only expects the economy to grow by 1.2 per cent, compared with the RBA's estimate of 2 per cent growth. Treasury only releases financial year forecasts that do not match with the OECD's calendar years, but its outlook is in line with the Reserve Bank.
The OECD is also more optimistic about unemployment than the government, with the jobless rate likely to hit a peak of 7.7 per cent, against the budget's forecast of 8.5 per cent.
Australia stands out against the crowd of other developed countries as the superior performer on most measures. Its unemployment rate will be lower than any other major industrial economy except Japan.
Its gross government debt next year will be the lowest in the OECD apart from Luxembourg and its deficit is lower than any other major developed country. Its housing construction is falling by less than in nearly every other country.
The OECD said that while fighting the downturn had forced governments into deep budget deficits, they would increasingly be forced to put government finances back on to a sustainable footing. The OECD praised countries such as Australia which have announced strategies for cutting their budget deficits, but Mr Elmeskov said governments had to be careful these efforts did not choke a recovery.
The OECD said governments with low levels of debt such as Australia had the scope for further discretionary stimulus spending next year if there is any unexpected weakening in the world economy. Many other nations with much larger debts, such as Japan, Italy and Ireland, do not have that latitude.
However, the OECD said its forecasts for Australia were "wrought with uncertainty".
"A more adverse external situation cannot be ruled out if the financial disorder lasts longer than expected. But a faster, more sustainable upturn in the Chinese economy would also spur a stronger recovery in Australia," it said
Source: The Australian
Posted: 26.06.2009