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OECD: Europe risks vicious debt cycle

The Organisation for Economic Co-Operation and Development has called on EU leaders to ease the pace of austerity.

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REAL estate prices are under threat from the high dollar along with confidence and jobs but the Organisation for Economic Co-operation and Development says Australia is set to grow at just about the fastest pace in the developed world for decades to come.

The OECD Economic Outlook, released last night in Paris, puts Australia near the top of the tree for economic growth during 2012, behind only South Korea, Mexico and Chile. While Australia's economy is set to grow at 3.1 per cent this year, close to the budget forecast, the US should grow at 2.4 per cent, Britain 0.5 per cent and Italy and Greece should slide further into recession.

The report credits the mining boom for keeping Australia ahead of the pack but says consumer caution and the ''persistently high exchange rate'' are holding back other parts of the economy.

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Threatened ... the high dollar and percieved job security may see housing prices set to rise.

Dislocation caused by the high dollar is ''generating substantial uncertainties that could weigh on employment, confidence and growth, with potential negative spillovers on house prices''.

Australian house prices, along with those in Canada, France and Sweden are still ''very high relative to rents and incomes'', pointing to further falls.

Welcoming the report, the Treasurer, Wayne Swan, acknowledged it painted a picture of a patchwork economy. He said tackling those pressures was central to the ''spreading the benefits of the boom'' package announced in the budget.

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Ahead of the pack ... Australian mining industry. Photo: Glenn Hunt

The report endorses the budget strategy, saying the decision to concentrate budget cuts on defence and foreign aid should ''limit the negative impact on activity''. It finds Australia's combined state and federal government debt among the lowest of any member nation.

The OECD finds global prospects ''somewhat brighter'' than six months ago, the immediate risks being ''contained, so far''. It says the US and Japan are enjoying a gradual ''post-crisis healing'' but in Europe confidence is weak and financial markets volatile.

The outlook forecasts no economic growth in the euro region this year, a more optimistic assessment than that of the Treasury, which expects a recession of 0.75 per cent. It says China's economy should grow 8.2 per cent, India's 7.1 per cent and the OECD as a whole 2.2 per cent.

Projections to 2050 give Australia the highest growth rate in the developed world after Chile and Mexico. China is set to overtake the US as the world's biggest economy in 2017.

The Trade Minister, Craig Emerson, yesterday signed a free trade agreement with Malaysia, promising immediate tariff-free entry of 97.6 per cent of Australian exports, climbing to 99 per cent by 2017. In return, Malaysia will enjoy the same access to Australia as Singapore.

Large Australian cars of the kind not usually exported to Malaysia will get immediate duty-free access. Smaller, more competitive cars such as the Holden Cruze will wait until 2016. Tariffs on Australian rice meant for retail sale in Malaysia will remain until 2023. Tariffs on wholesale rice will remain until 2026.