The International Monetary Fund (IMF) has sent Treasurer Joe Hockey a timely reminder not to go too hard in his first budget.
In its latest regional report, the IMF continues to expect the Australian economy will struggle to grow at a pace to relieve pressure on the unemployment rate, which stands close to a decade high of just under six per cent.
Since October last year, the Washington-based institution has downgraded its Australian growth forecast to 2.6 per cent in 2014 and 2.7 per cent in 2015.
It had previously expected growth of 2.8 and 2.9 per cent, respectively.
“Australia’s economy is likely to grow below trend as the investment phase of the mining boom passes its peak and begins to decline,” the IMF said in its Regional Economic Outlook for Asia and the Pacific released in Hong Kong on Monday.
The economy needs to grow above three per cent a year to keep unemployment in check.
Mr Hockey previously has promised his May 13 budget won’t hinder tentative signs of economic recovery, suggesting spending cuts will occur in the outer years of what he has described as a 10-year plan.
In contrast, the IMF has upgraded its New Zealand growth forecasts in the past six months as its post-earthquake reconstruction gathers steam, along with strengthening domestic demand and exports.
It expects the NZ economy to grow at 3.3 per cent in 2014 and three per cent in 2015, up from respective forecasts of three per cent and 2.4 per cent previously.
More broadly, the IMF says Asia should experience robust growth throughout 2014 and 2015, and be among the global growth leaders.
The region should benefit from improved prospects among the world’s advanced economies, while facing both new and old risks.
These include geopolitical uncertainty over Ukraine, the exit from unconventional monetary policy in the US – otherwise known as tapering – and the impact of a low inflation environment in the euro area.
“Growth in China and Japan could also fall below expectations, with negative spillovers from the rest of the region,” it said.