Australia Property Market At Risk Of Sharp Correction: OECD

(RTTNews) - Australia's booming property market could be at risk of a 'sharp correction' and the country was warned to keep its monetary policy firepower 'in reserve' amid uncertainties on the economic outlook, the Organization of Economic Co-operation and Development (OECD) said in a report Wednesday.

In the latest economic survey report on Australia, the Paris-based think tank said monetary policy firepower should be held in reserve in assumption of uncertainties on the outlook and the downside aspects of rate cuts on the booming housing and credit markets.

Further, OECD said fiscal policy should continue to provide support if needed from the operation of automatic stabilizers and structural reform should facilitate post-resource-boom adjustment, particularly further shift towards indirect taxes.

The OECD expects Australia's growth to dip to 2.25 percent this year and to rise to nearly 3 percent in 2016. The economy can adjust and recover from the fall in commodity prices and unwinding resource-sector investment by gathering momentum in consumption, non-resource investment and exports, the report said.

Lower oil price has dented consumer price inflation, which is expected to remain moderate due to economic slack, the OECD projected. The unwinding of resource-sector investment reflects large-scale projects reaching completion and easing-up of investment plans given commodity-price falls, it added.

The group said maintaining sound macroeconomic policies, increase tax reform, lower red tape and competition-boosting measures would be required for enhancing the climate for business investment in non-commodity sectors.

OECD said it welcomes plan for boosting investment in public infrastructure, but rigorous cost-benefit analysis would be required for project selection. The Reserve Bank of Australia is assumed to begin policy-rate increases in early 2016 in response to improved economic conditions.

The general-government deficit is expected to fall to 2 percent of GDP in 2015 and to 1.5 percent of GDP in 2016.