If you feel like a bit of a laugh, check-out the OECD’s latest Economic Outlook for Australia, released overnight:
Economic growth is projected to increase gradually and reach almost 3% by 2018. The drag on growth from declining resource-sector investment will fade and gathering momentum outside the resource sector will support wage and employment growth, thus boosting consumer spending. Tightening labour and product markets will bring inflation up from current low levels.
The central bank is projected to start increasing its policy rate towards the end of 2017, as growth improves and consumer price inflation moves towards its 2-3% target band. Higher interest rates will relieve some of the pressure on the booming housing market, although the risks posed by possible overheating still call for enhanced macro-prudential policies. In the event of an unexpected downturn, fiscal policy should be used to support activity. Given the good fiscal position, projects with high rates of return should be pursued.
Australia is distant from major world markets but is nevertheless well integrated into global markets. Sound policies have helped. In particular, Australia’s immigration and visa systems have been critical to demographic and economic development. However, there is room for a more business-friendly tax mix. Also, inequality needs to be contained, including that linked to globalisation, in particular through enhancing labour-market skills and providing better paths for disadvantaged people to get jobs.
There’s so much garbage here, it’s hard to know where to start.
The projected rebounding in real GDP to 3% by 2018 is hard to fathom. Mining investment still has further to fall, as evidenced by last week’s Capex survey, and the monster dwelling construction boom is nearing its peak and will soon begin detracting from growth. Sure, there will be some offset from infrastructure investment, but not much.
Rather than magically firming, wages growth, employment and consumption spending will remain under pressure as the housing market begins to fade. Canberra’s mass immigration program, which the OECD loves so much, will also continue to hold wages down and keep unemployment elevated.
Adding to the soft economic outlook, commodity prices are already falling and will likely continue to do so on the back of the iron ore glut, lowering national income and Budget revenue.
As the Budget’s assumptions are smashed, and the deficit continues to rise, Australia will lose its sovereign credit rating, thus raising funding costs for the banks and raising mortgage rates. Along with the soft domestic economy and weak inflation, the RBA will be loathe to raise interest rates as anticipated by the OECD.
Finally, the point about containing inequality is delusional as long as Australia maintains a rorted visa system and turbo-charged immigration program, which necessarily undermines labour for the benefit of wealthy owners of capital.
The OECD needs to wean itself off the crack.