Finance Finance News IMF slashes growth predictions for Australian economy

IMF slashes growth predictions for Australian economy

New figures from the Parliamentary Budget Office show the federal budget has taken massive hits to revenue and spending has increased due to coronavirus.
Twitter Facebook Reddit Pinterest Email

Australia’s expected economic growth has been slashed for this year and next year but Treasurer Josh Frydenberg insists he doesn’t have to choose between growth and a surplus.

The International Monetary Fund’s World Economic Outlook, released on Wednesday, predicts Australia to grow at 1.7 per cent in 2019, down from a predicted 2.1 per cent.

Global growth for 2019 is down to three per cent, from a predicted 3.2 per cent.

“The Australian economy is facing some significant headwinds. The global headwinds are real, and you’ve seen that in the IMF report today, and their description of a synchronised slowdown,” Mr Frydenberg said on Wednesday.

“[But] you can have a strong budget position and a strong economy.”

Mr Frydenberg reminded Australians they are in the 29th consecutive year of economic growth – a feat no other country has matched.

“The IMF forecast Australia to grow faster than any G7 economy over the next two years except the United States,” he said.

“But the international challenges are a stark reminder of why we must stick to our economic plan, which will deliver lower taxes so Australians can keep more of what they earn.”

The IMF also predicts Australia’s economy will grow 2.3 per cent in 2020 – down from a predicted 2.7 per cent in the April forecasts.

Labor shadow treasurer Jim Chalmers said the drop in Australia’s growth forecast was a sign the economy was flagging.

“[It] is larger than the downgrade to global growth and four times as large as those for the euro area and advanced economies as a whole,” he said.

He noted the IMF had also called on countries including Australia to provide fiscal stimulus and invest in infrastructure to support the economy and improve productivity.

Australia has so far been a big winner of the global slowdown sparked by the United States and China’s trade war, with China spending on infrastructure and buying raw materials from Australia.

But the IMF warned against relying on interest rate cuts to boost economies, and argued for government to spend some money.

“Monetary policy cannot be the only game in town and should be coupled with fiscal support where fiscal space is available,” the report said.

Dr Chalmers said the updated forecasts made a mockery of Mr Frydenberg’s claims that the government has the right policy settings for the economy.