Australia’s next federal government faces a world that’s still a long way from a sustainable economic recovery.
The Organisation for Economic Cooperation and Development’s (OECD) latest report on the world’s biggest economies says North America, Japan and the United Kingdom are expanding while the euro area as a whole was no longer in recession.
Growth in China – Australia’s number one trading partner – also appears to have passed a trough, but recent financial market turbulence points to difficulties in a number of other emerging economies.
“While the improvement in growth momentum in OECD economies is welcome, a sustainable recovery is not yet firmly established and important risks remain,” the Paris-based institution said in a 2013 economic update released on Tuesday.
The group’s findings tally with the current Labor federal government’s view that Australia continues to face economic headwinds from offshore that could dampen domestic growth.
The OECD believes the euro area remains vulnerable to renewed financial, banking and sovereign debt tensions.
At the same time, there are potential serious negative economic consequences if there’s a repeat of earlier episodes of “deadlock and brinkmanship” over fiscal policy in the United States.
It also says there’s a risk recent financial market volatility and strong capital outflows in some emerging economies could intensify, exerting an additional drag on global growth.
“As emerging economies contributed the bulk of global economic growth in recent years, and since their share of global output has increased so much, this widespread loss of momentum makes for sluggish near-term growth prospects for the world economy,” the OECD says.
It believes major economies should keep interest rates low, but also thinks the US Federal Reserve should gradually reduce its pace of quantitative easing by buying back US debt.
In China, subdued inflationary pressures create room for monetary policy easing if growth were to flag, but authorities need to be cautious because of strong credit growth.
The OECD’s latest outlook did not include Australia.
But in May it forecast Australia’s growth to slow to 2.6 per cent in 2013, before picking up to around 3.2 per cent in 2014.
The Australian Bureau of Statistics will release June quarter growth numbers on Wednesday.
The report’s expected to show Australia is growing at an annual rate of 2.5 per cent.