Fed:Unemployment heading to six per cent by 2010:OECD
By Colin Brinsden, Economics Correspondent25 Nov 2008 9:00 PM
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CANBERRA, Nov 25 AAP - The unemployment rate could reach six per cent by 2010 as Australia feels the heat from a lengthy recession in the world's leading economies, the OECD says.
The Organisation for Economic Cooperation and Development (OECD) also believes house prices will fall, while businesses are expected to scale back "ambitious" capital investment projects as economic growth sinks below 2.0 per cent in 2009.
And it also warned in its latest Economic Outlook, released on Tuesday, that an even more pessimistic scenario could not be ruled out.
"An external environment that is less favourable than expected, combined with a further decline in the terms of trade, would pose significant risks," it said.
This would be the case if the global financial crisis continues longer than the OECD anticipates and brings about a greater weakening in the Chinese economy.
The Paris-based institution is forecasting four quarters of negative growth from the September quarter 2008 for the combined 30 OECD countries, led down by the US and the Euro area, and to a lesser extent Japan.
For non-OECD member China - Australia's largest trading partner - the OECD expects growth to ease to 8.0 per cent in 2009, having slipped into single-digit growth for the first time in five years this year.
The OECD said China's recent announcement of a $A850 billion stimulus package came too late to be included in its projections, but it should significantly boost growth in 2009-10.
OECD chief economist Klaus Schmidt-Hebbel said the report represented a substantial downward revision from just a few months ago and that many OECD countries now were either in or on the verge of a protracted recession of a magnitude not experienced since the early 1980s.
This could result in the number of unemployed in the OECD area rising by eight million over the next two years.
But Mr Schmidt-Hebbel said uncertainties about the outlook were "exceptionally large".
"We assume that the extreme financial stress since mid-September will be short-lived, but will be followed by an extended period of financial headwinds through late 2009, with a gradual normalisation thereafter," he said in the editorial of the report.
For Australia an extended period of low economic growth was probable.
"(But) despite the depressed international environment, the impact of the financial crisis and the fall in the terms of trade should be relatively contained," the OECD said.
It is forecasting Australian economic growth of 1.7 per cent in 2009 before rising to 2.7 per cent in 2010.
The unemployment rate is expected to rise from a current level of 4.3 per cent to 5.3 per cent in 2009 and 6.0 per cent in 2010.
As such, the OECD said it was important for the ongoing reform of industrial relations to preserve labour-market flexibility.
It said the effectiveness of the federal government's $10.4 billion economic stimulus package that provided assistance to pensioners, families and homebuyers might be limited if confidence was not restored.
