Thursday, May 30, 2013

OECD warns about Australia's post-boom outlook

By Business editor Peter Ryan

The future growth of Australia's economy has been questioned in a surprisingly frank update from the Organisation for Economic Cooperation and Development (OECD).

The OECD says the weakening of the resources boom will only be partly offset by a strengthening of the non-mining sector.

It is an unusually direct warning that the OECD makes deep inside its World Economic Outlook, on page 103, and it says Australia's economic growth will temporarily slow to 2.5 per cent this year before picking up to 3.5 per cent in 2014.

However, the report cautions that the anticipated weakening in mining investment, which the Reserve Bank has been warning about for the past year, will only be gradually offset by mining exports and the strengthening of the non-mining sector.

The OECD also says the persistently high Australian dollar and a lack of confidence are holding back new drivers of growth.

Here's my analysis from this morning's AM.

Read the OECD's World Economic Outlook here.

Even so, Australia remains a pretty bright spot in a world of gloom - ranked 16th out of 59 countries, down one notch.

Professor Stephen Martin, chief executive of Committee for Economic Development of Australia and a former Labor MP, says local businesses need to thinking beyond mining and how to cut the cost of doing business in Australia.

"These are genuine issues which the business community has to confront," he said.

"It's about innovation in management practices, it's about looking at some of the labour flexibility questions again but, look, we are a high wage country but we're a very productive country, and we could do better and I think we'll see some of the changes on how, for example, labour productivity is measured when the effects of the mining investment actually can be measured and come on line."

The OECD's report card has a tick for the Reserve Bank's economic management, which has seen the cash rate cut by 2 percentage points since late-2011. The OEDC says more cuts might be needed.

It says a marked slowdown in China would weigh on exports, hence the need for an accommodative monetary policy to help stimulate the non-mining sector.

On balancing the budget, the OECD says if activity worsens, fiscal policy could be relaxed - so it is not calling for a return to surplus at any cost, but sees it as a desirable aim.

The OECD also thinks that an increase to the GST would enhance efficiency.

On the political front, it thinks the uncertainties weighing on the pace of budget consolidation will probably be clarified one way or another after the September election.

Today also sees the release of the latest quarterly figures from the Australian Bureau of Statistics on business investment - economists are looking at a slight improvement after a 1.2 per cent fall in the last reading.

These figures go to both the weakness and low confidence in the manufacturing sector, and also what mining companies have been doing - paring back or reconsidering their spending plans.

The transition from the resources boom to non-mining growth could be bumpy and these figures will give an indication of how rocky that road might be.

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