Australia is on track to dodge a recession but the International Monetary Fund says more interest rate hikes are warranted.

The IMF has slightly downgraded its growth expectations for Australia and anticipates growth slowing from 3.6 per cent in 2022 to 1.6 per cent in 2023, down a touch from the 1.7 per cent predicted in November.

Growth is then expected to recover to about 2.25 per cent over the medium term.

In its report card on the Australian economy, the IMF anticipated a gradual deceleration in inflation toward the Reserve Bank’s two to three per cent inflation target by the end of 2024.

While the country is in better shape than other advanced economies because of a robust post-pandemic recovery and strong commodity prices, a “soft landing” is not a given.

The IMF outlined several downside risks that threaten Australia’s economic prospects, including the uncertain global environment, the housing market correction weighing on consumption and a potential drop off in commodity prices.

In its regular assessment of the economy, the IMF said further interest rate rises were justifiable.

“With a positive output gap, a tight labour market and high inflation, further monetary policy tightening, complemented by fiscal consolidation, is warranted,” it said.

The agency said the government would need to keep spending contained in the medium term and phase in new spending programs gradually.

Any cost of living support should be targeted and temporary, the IMF said, such as extending low-income tax offsets or topping up payments for welfare and JobSeeker recipients.

The IMF also called for tax reform to make the system more “efficient and equitable”.

It recommended pushing ahead with stage three tax cuts to reduce the personal income tax burden and bolstering property taxes and the goods and services tax.

Treasurer Jim Chalmers said the report served as a reminder the Australian economy was in good shape.

“Our economy has a lot going for it: historically low unemployment, good prices for our exports, and the beginnings of wages growth after a decade of stagnant wages,” he said.

Dr Chalmers said the report card endorsed his government’s economic management.

“The IMF report acknowledges the government’s spending restraint helps address the inflation challenge in our economy and avoids making the job of the Reserve Bank harder,” he said.

– AAP