Friday, November 19, 2010

Low unemployment until 2025?

The OECD's long-distance specs

Australia's unemployment rate, already amongst the world's lowest, is set to remain low well into the 2020s.

The long-term projection in the latest OECD global economic outlook released overnight in Paris has Australia's unemployment rate at 5.1 per cent through until 2025.

The average unemployment rate among the 33 Organisation for Economic Co-operation and Development members is set to fall from 8.3 to 5.5 per cent in that time.

More immediately Australia's unemployment rate is expected to fall to 4.8 per cent next year and to 4.6 per cent in 2012 at a time when the United States will be struggling with 8.3 and the United Kingdom 7.6 per cent.

The sting in the tale is interest rates with the OECD expecting at least four more Reserve Bank hikes in the next 18 months... taking the cash rate to 5.8 per cent - higher than any of its members apart than Chile, Poland and Turkey.

It expects Australia's inflation rate to touch the top of the Reserve Bank's target zone within a year.

Treasurer Wayne Swan said the report placed Australia "well ahead of the pack, with an economy better placed than almost any other to weather challenges presented around the world".

The OECD praised the government's financial management highlighting a finding that Australia's "budgetary situation is well under control," an accolade it awarded to no other member nation. It predicts a return to surplus in 2013.

Globally the OECD says the world economy is continuing to recover but that "progress has become more hesitant".

It sees "significant risks on the downside, notably those stemming from renewed declines in house prices in the United States and the United Kingdom, high sovereign debt in some countries, and possible abrupt reversals in government bond yields".

"Were some to materialise and threaten to derail the recovery, additional policy responses would be warranted in countries that still have room for manoeuvre," it says.

Australia stands out from the pack in expecting much higher investment in the two years ahead with private capital growing at 6.6 and 8.5 per cent compared to an OECD average of 5 and 5.2 per cent.

It is also unsual in having much higher house prices with a price-to-income ratio 50 per cent above the long-term average, compared to a ratio slightly below the long-term average in the OECD as a whole.

The earlier-released OECD survey of Australia lamented that there was "evidently no physical shortage of land for building in Australia, and while it is true that most of the population live in coastal cities, there is an essentially unlimited amount
of sparsely-inhabited hinterland".

Saying it was "remarkable" there had not been more house building the Organisation blamed "legally complex and time-consuming" planning laws.

In a separate speech Reserve Bank Deputy Governor Rick Battellino warned the economy was nearing capacity saying it would "struggle to grow at much faster rates without adding to inflation pressures."

Published in today's SMH and Age

Related Posts

. Things are good. So Treasury's worried.

. The year ahead: No double-dip. Even Steve Keen says so

. Are Some Forecasters Really Better Than Others? Oh my