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OECD's "all clear" from the bridge of the Titanic



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JIM C A R L T O N SQMITOW TBEASmEBS P R E S S R E L E A S E

OECD's "ALL CLEAR" FROM THE BRIDGE OF THE TITANIC

The OECD's latest outlook statement is like an "all clear" from the Bridge of the Titanic before hitting the iceberg of high interest rates.

Compiled early in November, the rosy OECD forecast for Australia's economic prospects in 1986 utterly fails to take into account major factors that will profoundly influence the economy in 1986.

Immediately after the forecast was written, the Australian dollar plunged eight percent on the trade weighted index as a result of falling international confidence.

Bad Balance of Payments figures, rising inflation and the 3.8% across the board wage decision were too much for international investors to stomach at that time.

After the forecast was written, the Government responded to‘the fall in the dollar by pushing interest rates over the 20% mark by far the highest real rates since the Great Depression over 50 years ago. >

These massive interest rates are already biting into the housing industry as confirmed by yesterday's figures on home lending and are also seriously affecting business and the farming community.

The OECD forecast does not mention high interest rates as a factor influencing the 1986 economy, so to that extent its forecast is useless.

It does say that "higher labour costs will erode the international competitive position of domestic producers through the projection period". .

What the forecasters did not know in early November was the extent to which the 3% "Productivity" wage cost increase would be brought forward by union industrial action on superannuation.

By encouraging superannuation claims to be fought out "in the field" the Treasurer has ensured that the bulk of the additional costs will begin from 1 July 1986 rather than be spread across two years, as the Government has claimed.

One can only assume that the OECD has used the Government's Accord Mark II policy statement as the basis of its forecast, as it could not have seen the subsequent industrial action nor the Treasurer's latest statements when it wrote its Report.

A forecast of this kind, so obviously out of date and out of context is most unfortunate , as it will make it more difficult for the Government to make the essential changes in its policy mix required to bring interest rates down and avert a recession in 1986.

SYDNEY -

20 DECEMBER 1985 . 02/991963

(Mr Carlton's home)