A new report has brought some good news for Treasurer Scott Morrison as he puts together the mid-year budget review.
The Organisation for Economic Cooperation and Development expects the Australian economy will continue to grow at a robust pace, with the jobs market strengthening further.
In its latest economic outlook, the OECD expects business investment outside of the housing and mining sectors to pick up, with exports boosted by new LNG production.
The Paris-based institution describes Australia’s budget as sound, noting the Turnbull government is committed to gradually unwinding the deficit.
It says while government debt has risen somewhat in recent years, it remains relatively low and will reduce as the budget deficit shrinks.
‘The strong fiscal position provides room for a more gradual fiscal consolidation, or even an expansion, should economic activity weaken unexpectedly,’ the OECD says.
This rosy picture will see the Reserve Bank start to lift interest rates in the second half of 2018, having kept the the cash rate at a record low 1.5 per cent since August 2016.
This, along with macro-prudential measures introduced by Australia’s financial regulators, will help to cool the housing market, it says.
However, it warns large house price corrections could reduce household wealth and consumption, damaging the construction sector and leading to job losses.
As it is, the OECD does expect consumption to remain subdued amid a gradual rise in interest rates and a slow pick-up in wages and inflation.
‘Due to a mild slowdown in global growth over the projection period, particularly in China, growth will edge slightly lower in 2019,’ it says.
Mr Morrison is due to release his budget review in mid-December.
KEY OECD FORECASTS FOR AUSTRALIA (%):
2017 – 2.5
2018 – 2.8
2019 – 2.7
2017 – 1.9
2018 – 2.0
2019 – 2.2
2017 – 5.6
2018 – 5.4
2019 – 5.3