Australia faces a major medium termadjustment to reduce debt and improve its economic performance,
the Organisation for Economic Cooperation and Development said
in its latest annual review of the Australian economy.
    It said Australia had a current external deficit of 5-3/4
pct of gross domestic product, high and rapidly rising external
debt equal to 30 pct of GDP, growing servicing costs and
inflation above nine pct, far higher than that of other OECD
countries.
    A major policy change in early 1985 helped lay the basis
for sustained non-inflationary growth and external
competitiveness had improved, but economic performance overall
had sharply deteriorated since June 1985.
    A major shift of real resources to the external sector --
about 4-1/2 pct of GDP by 1990-91 -- was required for the
economy to expand in line with potential, for employment to
grow, and for the debt/GDP ratio to stabilize, it said.
    Success depended on the setting of right policies including
tighter fiscal policy, a reduction in the public sector
borrowing requirement and on private sector behaviour.
    Looking ahead over the next 18 months, the OECD expected
economic performance to improve, partly as a result of tighter
fiscal and monetary policy, and a substantial improvement in
trade volumes.
    It said positive GDP growth of three pct might be restored,
the current external deficit could fall to some 4-1/2 pct of
GDP by the first half of next year, while inflation was
projected to decelerate to around five to 5-1/2 pct by
mid-1988.
    Continued real wage moderation was essential to maintain
the competitive edge created by the Australian dollar's
depreciation, and to maintain if not boost profit shares in
order to encourage business investment.
    The report urged Australia to broaden its export base by
developing viable and competitive service and manufacturing
industries, and not count on a recovery of commodity markets to
correct its external imbalances.
    It added Australia should reduce protection levels in
manufacturing, even though faster trade liberalisation would no
doubt hurt the most protected sectors of industry.
 REUTER
