Late in, early out of the downturn
Peter Martin Economics Correspondent
June 25, 2009
Australia is set to soar out of its economic downturn.
Australia is set to soar out of its economic downturn.
AUSTRALIA is set to soar out of its economic downturn sooner and more sharply than forecast in the budget, according to forecasts from the Organisation for Economic Co-operation and Development understood to have the backing of the Australian Treasury.
The OECD says the local economy should shrink 0.3 per cent this year, less than any other OECD economy and far less than the contraction of 1 per cent that underlies the forecasts in the May budget.
Next year the economy should roar back 2.4 per cent, also above budget forecasts and more than any other OECD economy apart from those recovering from collapse in 2009.
The Treasurer, Wayne Swan, greeted the forecasts released overnight in Paris as evidence Australia was "outperforming every other advanced economy in the face of the recession".
The forecasts show Australia's unemployment rate reaching 7.9 per cent late next year rather than the 8.25 to 8.5 per cent range assumed in the budget. They also suggest a milder build-up in government debt than forecast at budget time as increased tax revenues kick in more quickly.
The difference between the Treasury's May forecast and the OECD's June forecast is not thought to represent a difference of opinion. Treasury and Reserve Bank staff worked closely with the OECD in preparing the report. Rather the change is thought to indicate the speed at which the global economy is improving.
The OECD update is the first in two years to revise projections up rather than down. The organisation now expects developed economies to shrink by just 2.6 per cent this year, down from the 3.4 per cent it forecast in March. It expects the US economy to shrink by 1.7 per cent instead of 3.5 per cent, and Japan to shrink by 3.6 instead of 4.4 per cent.
"Activity now looks to be approaching its nadir," said the OECD chief economist, Jorgen Elmeskov. "Thanks to a strong economic policy effort an even darker scenario seems to have been avoided."
The OECD identifies China as the driving force behind the global recovery, crediting "massive government stimulus" measures with lifting expected growth there this year from 6.3 per cent to 7.7 per cent and to 9.3 per cent next year.
In a blow to the federal Opposition, the OECD specifically commends the infrastructure spending and cash bonus payments opposed by the Coalition in the Senate, describing them as "welcome" and "boosting" domestic demand.
It cautions policymakers not to ease up on efforts to stimulate their economies and says the Reserve Bank has room to further cut interest rates.
"With a nascent recovery hopefully in sight it would be tempting to relax the extraordinary policy effort of the past nine months," it says. "Tempting, but wrong. Not only because post-crisis policy strategies need preparing but also because there is still more policy can do to ensure a faster and more robust recovery."
The report says the Rudd Government needs to "maintain the expansionary thrust" of its policy. "Despite relatively favourable developments" Australia's conditions "remain fragile" with a further downturn likely this year.
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