Thursday, June 25, 2009

Australia to perfom better than any other advanced nation

So says the OECD and here are its forecasts (click to enlarge):

Australia is set to soar out of its economic downturn sooner and more sharply than forecast in the Budget according to updated forecasts from the Organisation for Economic Co-operation and Development understood to have the backing of the Australian Treasury.

The OECD says the Australian economy should shrink by a mere 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 more than assumed in the Budget and more than any other OECD economy apart from those recovering from collapse in 2009...

Treasurer Wayne Swan greeted the updated forecasts released overnight in Paris as evidence that Australia was "outperforming every other advanced economy in the face of the recession".

The revised 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 buildup 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 between the two organisations. 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 up projections rather than revise them 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 United States 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 OECD cheif economist Jorgen Elmeskov. "Thanks to a strong economic policy effort an even darker scenario seems to have been avoided."

While cautioning that risks remained, Mr Elmeskov said that "significantly," the risks were "more balanced than before".

"Indeed the assumptions on which these projections are based could prove too conservative," he said.

The OECD identifies China as the driving force behind the more-rapid-than-expected global recovery crediting "massive government stimulus" measures with lifting China's expected growth this year from 6.3 per cent to 7.7 per cent and to 9.3 per cent next year.

In a blow to Australia's 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" Australia's domestic demand.

It cautions policy makers not to ease up on efforts to stimulate their economies and says Australia's Reserve Bank has room to cut its interest rates further.

"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."

Referring specifically to Australia the report says the Rudd government needs to "maintain the expansionary thrust" of its policy.

"Despite relatively favourable developments" the report says, Australia's conditions "remain fragile," with a further downturn likely later this year.

Published in today's SMH and Age