Oecd Economic Survey.

127 Pages·7.063 MB·English

by  OECD

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OECD
ECONOMIC SURVEYS
AUSTRALIA
ORGANISATION FORECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION FOR ECONOMIC
CO-OPERATION AND DEVELOPMENT
Pursuant toArticle 1 oftheConvention signed in Paris on 14th
December 1960, and which came into force on 30th September 1961,
the Organisation for Economic Co-operation and Development
(OECD)shall promotepoliciesdesigned:
to achieve the highest sustainable economic growth and
employment and a rising standard of living in Member
countries,whilemaintainingfinancial stability,andthusto
contributetothedevelopmentoftheworldeconomy;
to contribute to sound economic expansion in Memberas
well as non-membercountries in theprocess ofeconomic
development; and
to contribute to the expansion of world trade on a
multilateral, non-discriminatory basis in accordance with
internationalobligations.
The original Member countries of the OECD are Austria,
Belgium, Canada, Denmark, France, Germany, Greece, Iceland,
Ireland, Italy, Luxembourg,theNetherlands,Norway,Portugal, Spain,
Sweden, Switzerland, Turkey, the United Kingdom and the United
States. The following countries became Members subsequently
through accession at the dates indicated hereafter: Japan (28th April
1964), Finland (28th January 1969), Australia (7th June 1971) and
New Zealand (29th May 1973). The Commission of the European
Communities takes part in the work ofthe OECD (Article 13 ofthe
OECD Convention). Yugoslavia has a special status at OECD
(agreementof28thOctober1961).
Publicégalementenfrançais.
©OECD 1992
Applicationsforpermissiontoreproduceortranslate
allorpartofthispublicationshouldbemadeto:
HeadofPublicationsService,OECD
2,rueAndre-Pascal,75775PARISCEDEX 16,France
Contents
Introduction 9
I. Recession and recovery 11
The origins of excess demand 11
The 1990/91 recession 14
Economic policy settings 30
Short-term economic prospects 41
II. Inflation in a medium-term context 46
Australia's inflation record 47
Monetary policy 49
The cost of disinflation 53
Towards a medium-term focus for monetary policy 54
III. The need for accelerated microeconomic reform 57
The productivity record 58
Labour market reform 63
Lower border protection and industry assistance 73
Deregulation 75
The Special Premiers' Conference initiative 76
Corporatisation and privatisation 78
Areas warranting further attention 80
IV. Conclusions 82
Notes and references 89
Annexes
1. Technical annex 96
II. Calendar of main economic events 98
Statistical and structural annex 107
Tables
Text
1. Demand and output 18
2. The labour market 20
3. Costs and prices 23
4. The current account 24
5. Trade volumes and prices 25
6. Announced reductions in cash rates since early 1990 33
7. Commonwealth government budgetary developments 39
8. Genera] government budgetary aggregates 40
9. Short-term prospects 44
10. Inflation performance since the 1960s 46
1 1. GDP per head 57
12. Factors affecting aggregate supply 60
Annex
Selected background statistics 109
A. Gross domestic product 110
B. Income and expenditure of households (including unincorporated
enterprises) 1 1 1
C. Prices and wages 112
D. Balance of payments 113
E. Foreign trade by commodity 114
F. Foreign trade by area 1 15
G. Production structure and performance indicators 116
H. Labour market indicators 1 18
I. The public sector 119
Diagrams
1. Key aspects of economic activity 12
2. Asset prices 13
3. Tobin's q and business investment 14
4. Profitability 15
5. Debt-equity ratio and income gearing 16
6. The current recession: comparison with 1982-83 17
7. Unemployment and educational attainment 21
8. Endogenous imports 27
9. Unit labour costs and international competitiveness 28
10. Current account and external debt 29
1 1. Interest and exchange rates 31
12. Inflation expectations over the next twelve months 33
13. Inflation and the indexed bond differential 34
14. Effective exchange rate and official reserves 35
15. Money and credit growth 36
16. Difficulty in obtaining finance 38
17. The stance of fiscal policy 41
18. Inflation in Australia and in the seven major OECD countries 48
19. Indicators of inflation 49
20. The terms of trade and the exchange rate 50
21. Contributions to price changes 52
22. Labour market rigidity and unemployment 53
23. Relative price of labour 59
24. Comparison of productivity levels 61
25. Participation rates in education, 1987 64
26. Real wage gap and unemployment 66
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BASICSTATISTICSOFAUSTRALIA
THELAND
Area(1000sq.km) 7682.3 Urbanpopulation.1989,percentoftotal
Agriculturalarea,1986-87,percent 61 (citiesover100000) 71
oftotal Populationofmajorcities,1989(1000):
Sydney 3624
Melbourne 3039
Brisbane 1274
Adelaide 1034
Perth 1 158
THEPEOPLE
Population.June1989(1000) 16833 Civilianemployment.1989(1000) 7728
Numberofinhabitantspersq.km 2.2 ofwhich: Agriculture 406
Naturalincrease,1989(1000) 127 Industry1 2056
NetMigration.1989(1000) 106 Otheractivities 5266
PARLIAMENTANDGOVERNMENT
CompositionofParliamentfollowinglatestelections:
Party Senate Houseof
Representatives
AustralianDemocrats 8
AustralianLaborParty 32 78
Independent 2 1
LiberalPartyofAustralia 29 55
NationalNationalPartyofAustralia 5 14
Total 76 148
Presentgovernment: AustralianLaborParty
NextgeneralelectionsforHouseofRepresentatives: March 1993
PRODUCTION
Grossdomesticproduct,1990 Grossfixedcapitalformation.1990:
(ASmillion) 379612 PercentageofGDP 22.9
GENERALGOVERNMENTSECTOR,PERCENTOFGDP,1990
Currentdisbursement 33.4 Currentrevenue 35.3
Currenttransfers 10.5 ofwhich: Directtaxes 18.6
FOREIGNTRADE
Mainexports,1990.percentoftotal: Mainimports,1990,percentoftotal:
Agriculturalproductsandbasicmaterials 30.1 Food,beveragesandtobacco 4.6
ofwhich: Wool 8.0 Basicmaterialsandfuels 8.7
Fuels 18.7 Chemicals(incl.plastic) 9.1
Metalsandmetalmanufactures 18.5 Metalsandmetalmanufactures 5.0
Machineryandtransportequipment 6.3 Machineryandtransportequipment 44.7
Othermanufacturedproducts 26.4 Othermanufacturedproducts 28.1
THECURRENCY
Monctarvunit: Australiandollar CurrencyunitperUSdollar,average
ofdailyfigures:
Year1991 1.282
January1992 1.337
1. Includingmining,electricity,gasandwater,andconstruction.
Note: Aninternationalcomparisonofcertainbasicstatisticsisgiveninanannextable.
This Survey is based on the Secretariat's study pre¬
paredfor the annual review ofAustralia by the Econo¬
mic and Development Review Committee on
21stfanuary1992.
After revisions in the light ofdiscussions during the
review,finalapprovalofthe Surveyforpublication was
given bythe Committeeon5th March 1992.
The previous Survey ofAustralia was issued in
February 1990.
Introduction
TheAustralian economy entered recession in mid-1990 reflecting the lagged
effects oftight monetary policy, the investment cycle and adverse terms oftrade
developments. Notwithstanding strong net exports, by the third quarter of 1991
real GDP (on an income basis) had dropped some 3.2 per cent below the June
quarter 1990 level - compared with a decline of around 2.5 per cent in the
1982-83 recession. Unemployment has risen quickly, to around 1072 per cent of
the labour force. The rise in the CPI over the year to the December quarter
dropped to 1.5 per cent, partly reflecting special factors, and was around 2 points
below the OECD average (excluding Turkey). Importantly, inflation expectations
have also fallen substantially, indeed to historically low levels, unlike the experi¬
ence of the previous recession. The recession may have bottomed in the middle
quarters of 1991 and there are signs of some recovery in the non-farm economy.
ChapterI ofthe present Surveydiscusses the origins ofexcess demand in the late
1980s, the ensuing recession and the forces underlying the modest recovery in
economic activity. Macroeconomic policy settings are then reviewed, followed
by an assessment of short-term economic prospects.
Australia's inflation record is examined in Chapter II. The record was
influenced by a range of factors, including aspects ofthe wage and price forma¬
tion process and the terms oftrade, although ultimately monetary policy settings
havehad the majorbearing on inflation outcomes. The exchange rate was floated
in 1983, giving the authorities greater independence to pursue monetary policy
goals. The constituency for low inflation in Australia does not appear to have
been strong - perhaps, because the cost of achieving low inflation seemed to be
relatively high and because ofthe widespread use of indexation arrangements to
protect social security recipients. Inflation came down less in the 1980s than on
average in the OECD area, but it has now fallen to low rates and there is a good
case fororienting policy towards locking in these low rates. The question is how.