AUSTRALIA - OECD.org

1 3. DEVELOPMENTS IN INDIVIDUAL OECD AND SELECTED NON-MEMBER ECONOMIESOECD ECONOMIC OUTLOOK, VOLUME 2018 ISSUE1 PRELIMINARY VERSION OECD 201897 AUSTRALIAThe economy will continue growing at a robust pace, around 3%. Businessinvestment will pick up, with exports boosted as new resource sector capacity comes onstream. Public infrastructure investment will also support growth. A stronger labourmarket and rising household incomes will sustain private consumption. Inflation andwages will pick up policy is appropriately supportive, with the central bank projected to startgradually tightening towards the end of 2018, when the pick-up in wages and pricesgathers pace.

2 Risks from the housing market and high household indebtedness warrantcontinued vigilance. The fiscal position is sound. In the event of a downturn, fiscal policyshould be used to support activity and protect the incomes of the most and external drivers underpin growthImproved terms of trade, strong global economic growth and additional resourceexports are supporting the economy. Resource sector investment is bottoming out, whileother business investment is picking up. Government consumption and infrastructureinvestment also support the economy. Rising employment is boosting incomes andconsumption. Employment has risen quickly, with many jobs filled by rising participationin the labour market, in particular among women and older workers.

3 Rising participationhas slowed further declines in unemployment and kept inflation pressures in check. Wageincreases are picking up only gradually and inflation remains below the target support can be gradually withdrawnMonetary policy remains supportive; the policy rate has been since August of stimulus is projected to begin towards the end of 2018, as wage and pricegrowth are expected to pick up further on account of a continued strengthening of activityand labour market performance. The resulting boost to household incomes shouldmitigate risks associated with AUSTRALIA s very high household :OECD Economic Outlook 103 database; and OECD Labour Force Statistics 2 2010Q1 = 100 Private consumptionInvestmentExportsVolumeDomest ic and external drivers underpin growth7172737475767778790123456782010201 220142016% of 15 64 year olds % of labour force Employment rate Participation rate Unemployment rate Employment and participation have risen strongly3.

4 DEVELOPMENTS IN INDIVIDUAL OECD AND SELECTED NON-MEMBER ECONOMIESOECD ECONOMIC OUTLOOK, VOLUME 2018 ISSUE1 PRELIMINARY VERSION OECD 201898 Housing markets already show signs of easing. House price growth has slowedmarkedly and housing loan approvals have edged down, partly thanks to macro-prudentialmeasures. Regulators have taken steps to limit growth of investor lending and havediscouraged loans with high loan-to-value ratios. Aggregate indicators of householdfinancial stress are low, although some areas mining regions in particular remain aconcern. Macro-financial risks from leveraged households and the housing market remainelevated, and the central bank and supervisors should therefore maintain debt in relation to GDP has risen in recent years, but remains relatively low andis projected to start falling given the government s proposed goal to reduce the annualdeficit by around percentage point of GDP per year over the four-year budget horizon.

5 Inthe federal budget proposals for 2018-19, the government notably proposes variousreductions in personal taxation over the short and medium term, with a strong economy,expenditure control and revenue integrity measures helping to deliver the commitment fordeficit reduction. The pace of deficit reduction is ample given projected growth. Inaddition, measures to combat social exclusion, for instance strengthening access toeducation and improving activation policy, could generate continued broad benefits fromgrowth and :Demand, output and prices1 2 prices AUD billion GDP at market prices1 Private consumption Government consumption Gross fixed capital formation Final domestic demand1 Stockbuilding1- Total domestic demand1 Exports of goods and services Imports of goods and services Net exports1- Memorandum itemsGDP deflator Consumer price index Core inflation index2 Unemployment rate (% of labour force)

6 Household saving ratio, net (% of disposable income) General government financial balance (% of GDP) General government gross debt (% of GDP) Current account balance (% of GDP) 1. Contributions to changes in real GDP, actual amount in the first column. 2. Consumer price index excluding food and energy. Source: OECD Economic Outlook 103 database. Percentage changes, volume(2015/2016 prices)3. DEVELOPMENTS IN INDIVIDUAL OECD AND SELECTED NON-MEMBER ECONOMIESOECD ECONOMIC OUTLOOK, VOLUME 2018 ISSUE1 PRELIMINARY VERSION OECD 201899 Growth will remain robustEconomic growth is projected to continue at a robust pace.

7 Exports and investmentwill have a positive impact, while consumption growth will be more subdued. Inflation willpick up only gradually. Strong global commodity markets remain an important source ofincome gains and growth, but also of uncertainty and risk. The slowdown and rebalancingin China could be a larger drag on growth than expected. High indebtedness of householdsremains a risk. Unexpectedly large corrections in house prices would reduce householdwealth, and could cut consumption and damage the construction sector. The combinationof strong employment growth and rising labour market participation raises questionsabout how much slack there is left in the economy and creates uncertainty surroundingwhen economic growth will translate into stronger increases in wages and incomes.