Australian confidence 'fragile': OECD
The Paris-based organisation says confidence is "fragile", the business situation "relatively discouraging" and growth outside the mining sector "timid".
"If activity worsens significantly, the authorities should not hesitate to ease fiscal policy," it says in its latest economic outlook.
The views are widely thought to reflect those of the Australian Treasury. It stations an officer in Paris to work with the OECD.
The report paints a picture of an economy transitioning away from growth driven by mining investment. But it says "the new drivers of growth are yet to emerge".
In the meantime, the outlook is uncertain. Growth should slip to 2.6 per cent this year before recovering to 3.2 per cent next year. But if new drivers of growth do not emerge, the government should ease budget conditions that are themselves weighing on economic growth.
In another potential insight into the Treasury's thinking, the OECD says Australia is well advised to boost the goods and services tax, cut the company tax rate and "improve the effectiveness of housing taxation", an apparent reference to the tax-free status of the family home and to negative gearing.
Opposition leader Tony Abbott has promised to commission a taxation white paper with no topic off limits should he win office. The terms of reference for the Rudd government's Henry Tax Review precluded discussion of the GST.
The OECD says the advanced economies should strengthen throughout 2013 and 2014, helped by very low interest rates, improving financial market conditions and slowly recovering confidence.
The US is likely to recover the fastest, recording growth of 3.2 per cent by the end of 2014. The eurozone will grow by only 0.1 per cent in 2013 and 1.5 per cent in 2014.
Japan will grow unevenly, recording unusually fast growth of 3 per cent in 2013 followed by a return to tepid growth of 0.5 per cent in 2014.
"The global economy is moving forward at multiple speeds," OECD chief economist Pier Carlo Padoan says in the report. "Each path carries its own mix of risks".
-An unexpected slump in construction activity - particularly engineering construction - wiped $1 billion off Australia's gross domestic product in the March quarter, raising fears the baton might slip in the changeover from mining to the rest of the economy.
The Bureau of Statistics reports that seasonally adjusted construction activity in Australia shrank by 2 per cent in the first quarter of 2013, wiping out almost all its growth over the past year.
Frequently Asked Questions about this Article…
The OECD described Australian confidence as “fragile” and said growth outside the mining sector is “timid.” It advised that the next Australian government should be prepared to push the budget further into deficit and “ease fiscal policy” if activity weakens, effectively recommending fiscal support should the economy deteriorate.
The OECD forecasted that Australia’s growth would slip to 2.6% in 2013 before recovering to about 3.2% in 2014, while warning that this recovery depends on new drivers of growth emerging beyond mining investment.
The report says the economy is moving away from growth driven by mining investment and that “the new drivers of growth are yet to emerge,” meaning other sectors need to step up to sustain expansion once mining investment slows.
An unexpected slump in construction activity, particularly engineering construction, wiped about $1 billion off Australia’s GDP in the March quarter. The ABS reported seasonally adjusted construction activity fell 2% in Q1 2013, almost erasing a year’s growth. Everyday investors should watch construction data and infrastructure activity as indicators of domestic economic momentum.
The OECD suggested boosting the goods and services tax (GST), cutting the company tax rate and “improving the effectiveness of housing taxation” — a reference to the tax-free status of the family home and negative gearing. These recommendations signal possible shifts in consumption, corporate and property tax policy that could influence consumer demand, corporate profits and the housing market.
The article notes the OECD’s views are widely thought to reflect those of the Australian Treasury, partly because the Treasury stations an officer in Paris to work with the OECD, suggesting some alignment in policy thinking.
The OECD said advanced economies should strengthen through 2013–2014 helped by very low interest rates and improving financial market conditions. It expected the US to recover fastest (about 3.2% growth by end-2014), the eurozone to remain weak (0.1% in 2013, 1.5% in 2014) and Japan to show volatile growth (3% in 2013, 0.5% in 2014). For investors, this means watching external demand and global growth differentials that could affect exports and market sentiment.
The article noted Opposition leader Tony Abbott had promised to commission a taxation white paper with no topic off limits if he won office, highlighting that tax policy — including possible discussion of the GST excluded from previous reviews — was expected to be a live political issue that could affect households and markets.
Call 1300 880 160
Start a chat
Schedule a call
