In its latest economic forecast, the Organisation for Economic Development (OECD) has forecast a rosy picture for Australia during 2018. It expects the economy to “continue growing at a robust pace” on the back of higher business investment and net exports. Australia’s unemployment rate is expected to fall, household incomes and private consumption are expected to rise. Inflation and wages “will pick up gradually”.
While this all sounds good, there is a sting in the tail. The OECD expects the RBA to begin raising the official rate “in the second half of 2018 when the pick-up in wages and prices becomes more entrenched”.
The OECD appears to be in agreement with the RBA when it comes to “high house prices in large metropolitan areas” and “households being highly indebted”. The two organisation have both highlighted the twin issues of house prices and household indebtedness in various reports in recent months and both have come to the same conclusions; continued macro-prudential measures are required. “To contain risks associated with potential large house-price corrections and financial stress, macro-prudential measures should be maintained.” The combination of these policies and higher rates are expected to “ease pressures on house prices” and reduce “other financial distortions”.