As the world’s major economies slow, Australia is going against the trend with accelerating economic growth which should continue into 2012, according to a leading international group
But a new recession in some rich countries cannot be ruled out and the eurozone crisis could deepen, according to the group in a report issued last night.
The Organisation for Economic Co-operation and Development (OECD) has revised sharply down its growth forecasts for the rest of the year for Group of Seven (G7) rich industrialised countries and expected at least one quarter of contraction in Germany and Italy.
The OECD also forecast the US economy will grow at only a 0.4% annualised rate in the December quarter.
In its interim economic outlook assessment released on Thursday, the OECD warned that the risk of economic contraction had increased in some major OECD economies.
But it also said that "a downturn of the magnitude of 2008/2009 is not foreseen".
“Growth is turning out to be much slower than we thought three months ago, and the risk of hitting patches of negative growth going forward has gone up,” OECD Chief Economist Pier Carlo Padoan said during a presentation of the OECD’s latest assessment.
Earlier improvements in labour markets are now fading, hiring intentions are softening and there are greater risks that high unemployment could become entrenched in many developed economies.
The OECD’s update to its May forecasts came one day before financial leaders from seven of the world’s most developed economies meet in Marseille, France.
Economic growth in the G7 economies excluding Japan will remain at an annualised rate of less than 1% in the second half of 2011.
Japanese growth is expected to be buoyed by the ongoing reconstruction efforts following the earthquake and tsunami.
Inflation may have peaked in emerging markets, which will allow for some policy easing.
Investment levels in many OECD countries remain well below historical averages, offering the possibility for renewed corporate spending in the coming months if uncertainty abates.
"The recovery almost came to a halt in the second quarter in many OECD economies. And downward revisions to earlier published data point to weaker underlying activity economic than had previously been thought," the OECD says.
That underlines the importance of the rebound in the Australian economy in the June quarter.
Except for Japan (for obvious reason) growth in Australia is accelerating, not contracting, as it is in the US, Europe, China and other leading economies.
On Australia, the OECD forecasts a surge in growth over the next year, along with falling jobless numbers and moderate inflation.
"The Australian economy is set to rebound after the disruptions caused by major natural disasters in early 2011," it said.
Growth, driven by historically high terms-of-trade, should accelerate from 3% in 2011 to 4.5% in 2012.
"Unemployment is projected to fall, although the remaining slack in the economy will mute the risk of inflation pressures.
"The continued fiscal consolidation, despite the cost of the rains and flooding to public accounts, is welcome, including from a cyclical point of view.
"The current stance of monetary policy seems appropriate, in absence of potential second-round effects on inflation of weather disruption and of oil price hikes.
"The authorities must take advantage of the favourable economic situation to pursue long term structural reforms, including those that favour output involving less CO2 emissions."
Growth in NZ is also forecast to rise sharply next year, from around 0.8% in 2011 to 4.1% in 2012 as the recovery from Christchurech’s two quakes accelerates.
That will be good news for all those Australian companies with businesses in NZ, such as the banks, Woolworths, Havey Norman, media companies Fairfax and APB asnd the AMP.
And if there was any chance of the Reserve Bank cutting rates because of a weakening local economy, it disappeared with the
from the Australian Bureau of Statistics yesterday.
Coming a day after stronger than expected first and second quarter growth, the rise in the number of people out of work and the fall in the number of new jobs, will have told the RBA its monetary policy settings are about right.
It continues the trend established earlier in the year of a slow weakening in the previous strong gains in employment.
The AMP’s chief economist, Dr Shane Oliver said the "jobs figures highlight that the slightly better than expected June quarter GDP report is old news.
"Australia is well placed to withstand the weaker global growth environment now developing, but to do so and to prevent a negative feedback loop developing from falling confidence, reduced spending and rising unemployment it will have to cut interest rates, which we continue to expect by year end."
"I have been looking for the unemployment rate to rise to 5.5% by year end but after today’s data the risk is clearly on the upside," he wrote yesterday.
But the RBA will see the weakening jobs market as a chance to sit longer on rates and see what happens to inflation.
Last November’s rate rise and the impact of the hi
