OECD revises Australian GDP forecast marginally lower, expects inflation to stay at 5pc this year
One of the world’s leading economic bodies has pushed lower its expectations for the Australian economy over the next two years, and pushed up its forecasts for national inflation.
Forecasts released late on Friday by the Organisation for Economic Co-operation and Development show the world economy is on a fragile path to recovery, with persistent downside risks.
The agency expects Australia’s GDP to grow 1.8 per cent this year and 1.5 per cent next year — both revised down 0.1 percentage points from November forecasts.
Inflation is expected to be at 5 per cent by the end of the year — 0.2 percentage points higher than the RBA’s expectation of 4.8 per cent — but almost halve to 2.8 per cent by the end of next year.
In line with broad economic and political assessments, the OECD expects the Australian economy to substantially benefit from China’s expected rebound, which it says should offset the impact of tighter financial conditions.
The OECD also calls for widespread structural policy ambition to return to boost supply given how it had pushed inflation higher in many nations.
Boosting efforts to pull back labour and market constraints, and strengthening productivity, would improve living standards and mitigate supply shortages and inflation pressures, it argues.
The OECD noted the impact of tighter global financial conditions and higher interest rates appearing in the banking system, notably in the collapse regional banks in the US.
Treasurer Jim Chalmers said while Australia was not immune from the ongoing international volatility, the national economy and financial system were well-placed.
“While we have a lot coming at us, we’ve got a lot going for us here at home: unemployment at historic lows, good prices for our exports, and the beginnings of wages growth,” he said.
“Australia’s banks are well-regulated, well-capitalised and have strong liquidity positions.”
The OECD expects stronger activity this year with some improving consumer confidence globally and most labour markets remaining tight, which would support higher private consumption. It revised up global GDP forecasts to 2.6 per cent this year, a 0.4 percentage point increase from November, and 2.9 per cent next year, a 0.2 percentage point rise.
Last month, more firms reported higher than falling output, particularly in the US, China, the UK and the Euro area, it noted.
“The improvement in activity and sentiment in the main G20 economies in early 2023 is due to the decline in global energy and food prices, which boosts purchasing power and should help to lower headline inflation, as well as the expected positive impact of China’s reopening on global activity,” it said.