Wednesday, November 26, 2008

The OECD thinks we'll muddle through

Or that's what it says, anyway

AUSTRALIA'S unemployment rate will soar from 4.3 per cent to 6 per cent with the budget maintaining a threadbare surplus under updated forecasts released by the Organisation for Economic Co-operation and Development.

The forecasts released in Paris overnight appear more negative than those of the Australian Treasury but accord with its thinking, being expressed in calendar-year rather than financial year terms.

The Treasury is forecasting no further jobs growth this financial year and an unemployment rate of 5.75 per cent by mid 2010. The OECD is forecasting 6 per cent by December 2010, indicating that expects jobs growth to remain weak.

Both are more optimistic than private forecasters including Goldman Sachs JBWere which are predicting an unemployment rate as high as 7.5 per cent by the end of next year...

The OECD warns that a more pessimistic scenario for Australia "cannot be ruled out."

"An external environment that is less favourable than expected combined with a further decline in the terms of trade would pose significant risks," it says. "Especially if the global financial crisis continues and brings about a greater weakening of the Chinese economy."

The OECD is expecting China's economic growth rate to dip from 9.5 per cent this year to 8 per cent next year after having slipped from double digit growth this year for the first time in five years.

It is forecasting extended recessions in the United States, Japan and Europe with the US not recovering until the second half of 2009.

The OECD expects Australia's budget surplus to tumble to just 0.6 per cent of GDP in 2009 before sliding to 0.3 per cent in 2010.

Its views are often seen as representing those of the Australian Treasury which employs a representative to work as a member of the OECD staff.

It expects Australia's rate of inflation to slide to halve in the next two years, sliding to 2.4 per cent by the end of 2010.