Friday, 19 February 2016

The difficult world economic environment for Australia's Teasurer

The OECD released overnight a rather gloomy update of the state of the world economy. Global GDP growth in 2016 is projected to be no higher than in 2015, itself the slowest pace in the past five years.
Estimates for Australia are  not provided in this Interim Economic Outlook but overall forecasts have again been revised down in light of disappointing recent data. In summary:
Growth is slowing in many emerging economies with a very modest recovery in advanced economies and low prices depressing commodity exporters. Trade and investment remain weak. Sluggish demand is leading to low inflation and inadequate wage and employment growth. 
Financial instability risks are substantial. Financial markets globally have been reassessing growth prospects, leading to falls in equity prices and higher market volatility. Some emerging markets are particularly vulnerable to sharp exchange rate movements and the effects of high domestic debt. 
A stronger collective policy response is needed to strengthen demand. Monetary policy cannot work alone. Fiscal policy is now contractionary in many major economies. Structural reform momentum has slowed. All three levers of policy must be deployed more actively to create stronger and sustained growth. The recipe varies by country, especially with regard to needed structural reforms.
For those preparing the May budget for Australia it must all be a bit depressing.
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