Domestic Economic Growth Upgraded To 3.1 Percent – OECD

  • Nov 22, 2018 AEDT
  • Team Kalkine
Domestic Economic Growth Upgraded To 3.1 Percent – OECD

The OECD says, ‘ahead of most advanced economies via the end of next year Australia's economic growth is tipped to remain strong and this is despite escalating financial risks emanating from the United States and global growth tempering.’

The Organization for Economic Co-operation and Development says ‘Business investments will pick up and new capacity coming on stream in the resource sector will support exports. While the unemployment rate will edge lower, growth of wages and prices will rise gradually.

Slightly edged down the 2019 forecast to 2.9 percent, the OECD however upgraded its 2018 estimate of domestic economic growth to 3.1 percent. Forecasting growth of 3.5 percent and 3.25 percent respectively, the forecasts are less bullish than the Reserve Bank of Australia.

Risks from the high household indebtedness and housing market permit a continued care by regulators, the OECD said. Growth would remain strong, globally but has passed its recent 3.7 percent peak and faces escalating risks which includes rising US interest rates and international trade tensions, the Paris-based OECD said.

Policy makers will have to direct their economies carefully and the global economy is navigating rough depths as noted by OECD. Compared to 3.7 percent forecast in its May outlook, Global GDP is now expected to expand by 3.5 percent in 2019, partly due to an unstable outlook in emerging market economies such as Argentina, Turkey and Brazil.

The OECD said ‘unemployment is at record lows and labor shortages are beginning to emerge in many countries’ Projected soft landing from the slowdown can be undermined by rising risks. An appreciating US dollar and higher interest rates are weakening their currencies and have resulted in an outflow of capital from emerging economies.

Slowing international trade as well as tighter fiscal and monetary policy in advanced economies, by 2020, is expected to contribute to a further global slowdown to a growth rate of 3.5 percent. Due to slowing global growth and capacity constraints, Australia is forecast to moderate to a 2.6 percent expansion in 2020.

Evidenced by a low jobless rate of 5 percent, upbeat assessment proved the coalition government's economic plan was delivering, Treasurer Josh Frydenberg's said the OECD's. Mr. Frydenberg said, ‘On recent findings from global credit rating agencies Standard & Poor's and Fitch, the OECD's assessment builds and which reaffirmed the International Monetary Fund and reaffirmed Australia's AAA credit rating which recognized our budget management and strong economic growth.

As wages and inflation pick up due to a tightening labor market, in the next two years the Reserve Bank of Australia could gradually begin lifting its 1.5 percent overnight cash rate, said the Paris-based organization.

The OECD said ‘as households become less willing to draw down savings amid tightening financial conditions and falling house prices, Household consumption growth will slow. Investment and export will support growth. A modest negative effect on growth will be on the drought in the farming sector.’


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