The OECD has ramped up its forecasts of Australian economic growth, predicting 3 per cent in 2018 and 2019 in line with the Treasury and the Reserve Bank, taking account of what it calls strong commodity demand, solid job creation and the Trump tax cuts.
The March update lifts the forecasts from the 2.8 per cent and 2.7 per cent predicted in November. It has Australia outpacing Canada, Germany, France, Italy, Japan, the UK and the US, and catching up with Korea.
The Organisation for Economic Co-operation and Development has lifted its forecasts for global growth from 3.7 and 3.6 per cent to 3.9 per cent in both 2018 and 2019.
Its forecasts for US growth have shot up from 2.5 to 2.9 per cent this year and from and 2.1 per cent to 2.8 per cent in 2019.
Beyond 2020, the OECD says, the impact of the Trump tax cuts is uncertain. They will push up US interest rates by by more than half a percentage point and boost the US government debt to GDP ratio by 5 to 6 percentage points.
It says the key risk to its forecasts is a rapid increase in tariffs in response to the Trump administration’s decision to impose a 25 and 10 per cent tariff on imported steel and aluminium.
“Governments of steel-producing economies should avoid escalation and rely on global solutions to resolve excess capacity in the global steel industry,” it says. “Safeguarding the rules-based international trading system is essential to prevent the longer-term harm to growth prospects that could arise from a retreat from open markets.”
Australia stood to benefit from stronger non-mining and infrastructure investment and improved terms of trade which, along with strong jobs growth, should provide support for household incomes despite “still modest” wage growth.
On the downside, Australia and Canada risked “further corrections” in real estate prices as global interest rates climbed. the OECD said.
Treasurer Scott Morrison said the OECD recognised the momentum building within the Australian economy.
“This adds to the clear economic consensus the Australian economy is strengthening, buoyed especially by increased investment, continued uptick in non-mining investment and the strongest year on record for jobs growth,” he said.
The forecasts lend weight to those in the Treasury’s December budget update, which lifted budget revenue by $4.2 billion dollars over 2017-18 and 2018-19.