SYDNEY: Australia’s policymakers should keep monetary and fiscal policy loose to support an economic recovery which is likely to be gradual at best, the OECD said on Wednesday.
In its semi-annual economic outlook, the Organisation for Economic Cooperation and Development also saw signs of stabilisation in the New Zealand economy, but predicted only modest growth for next year. The OECD said Australia’s gross domestic product (GDP) was likely to decline by 0.5 percent in 2009 and grow by only 1.25 percent in 2010, while unemployment could climb to almost 8 percent by the end of next year.
“To mitigate the impact of the crisis, the authorities need to maintain the expansionary thrust of their economic policy,” said the OECD. “Monetary policy could be loosened further.”
The Reserve Bank of Australia (RBA) has cut its key cash rate by a huge 425 basis points since September, taking it to an historically low 3.0 percent, while the Labor government has announced stimulus measures worth more than A$52 billion ($41.4 billion).
The OECD also welcomed a planned increase in infrastructure spending. Still, it emphasised the economic outlook was highly uncertain and dependent on international developments, particularly in China. On New Zealand, the OECD predicted GDP could fall around 3.0 percent in 2009, before growing 0.6 percent in 2010.
“Recent indicators of activity, notably rising net immigration and a pick-up in the housing market, suggest that conditions are stabilising, consistent with growth resuming later this year,” said the report. It said the Reserve Bank of New Zealand’s pledge to keep rates low until late 2010 was “an unusually clear statement of intent”. The RBNZ has cut rates by 575 basis points to a record low 2.5 percent.
“Given the huge amount of global policy stimulus in the pipeline, the recovery could prove more vigorous than envisaged, requiring earlier monetary tightening.”