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2005 OECD Economic Outlook, Volume 2005 Issue 1

image of OECD Economic Outlook, Volume 2005 Issue 1

Presents OECD's assessment of the economic outlook to the end of 2006 for the OECD area and China, Brazil, and the Russian Federation.  It finds that Japan and the US have rebounded but that Europe is lacking in sustained momentum, and it carefully examines why. This issue of the OECD Economic Outlook also includes several medium-term scenarios projecting to 2010. The special chapter covers measuring and assessing underlying inflation.

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New Zealand

Economic growth has been running ahead of potential, with labour shortages and inflationary pressures mounting. Higher interest rates will damp domestic demand through the coming year, although this will be offset by the income effects of the “working for families” package. Increased business investment will help ease capacity constraints and pave the way for higher productivity growth and increasing real wages. Demand also continues to be boosted by a vigorous expansion in government consumption.

With the pace of activity now slowing, the recent monetary tightening should be sufficient to limit inflation, given the appreciation of the exchange rate. But additional fiscal stimulus beyond that already planned could put the projected soft landing at risk and would need to be offset by higher interest rates in order to bring the economy back onto a sustainable growth path.

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