Australia’s economic growth is expected to be among the highest in the developed world next year thanks to mining investment and booming commodity prices, according to a report from the Organisation for Economic Cooperation and Development.
But the report suggests interest rates might need to come down again if Europe’s economic woes deepen.
The semi-annual Economic Outlook pegs Australia’s economic growth at 4% in 2012, with unemployment hovering at around 5.25% for the next several years. According to the OECD, growth numbers are projected to be slightly less rosy in 2013 at 3.2%, though inflation should stay right on target at 2.5%.
The Paris-based group applauded the Reserve Bank’s recent decision to cut interest rates, saying it helps offset negative effects surrounding concerns over the global economy.
The report says developments in Europe are of particular concern, and that its outlook for Australia assumes a baseline case that Europe manages to “muddle through” and avoid any major collapse. The OECD warns, however, that the Reserve Bank should be prepared to drop interest rates “significantly” if Europe’s economic situation gets worse.
The report also suggested Australia has room to boost spending in order to offset a drop in demand brought on by a deepening European crisis, though this would delay a plan to return the federal budget to surplus in 2013.
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