IMF sees dangers in Aussie recovery

Australia is expected to lag behind its peers in reducing inflation and boosting economic growth, the International Monetary Fund has warned, as federal Treasurer Jim Chalmers prepares to attend a series of high-level talks in Washington.

With less than a month until the May budget, Dr Chalmers will leave the country on Thursday to attend meetings with counterparts at the G20, IMF and World Bank, as a slowdown in China, escalating tensions in the Middle East and the prospect of delayed interest rate cuts weigh on the global economy.

“These evolving global conditions make it an important time to engage with my counterparts and international institutions as we put the final touches on the May Budget,” Dr Chalmers said on Tuesday.

In its latest World Economic Outlook, also released on Tuesday, the IMF forecast average headline inflation in Australia would ease to 3.5 per cent in 2024, down from its October projection of 4 per cent.

But consumer price growth would still be 3 per cent on average through 2025, the projections showed, at the top of the RBA’s 2-3 per cent target band.

Meanwhile, other advanced economies are expected to make further headway on reducing prices than Australia, with the median inflation rate set to ease to just 2.4 per cent in 2024, and fall further to 2 per cent by 2025.

In some developed economies, including Australia, inflation has tracked sideways in recent months, prompting cautions from the IMF.

“While inflation trends are encouraging, we are not there yet,” said Pierre-Olivier Gourinchas, the IMF’s chief economist. “Somewhat worryingly, progress toward inflation targets has somewhat stalled since the beginning of the year.

“This could be a temporary setback, but there are reasons to remain vigilant.”

The IMF said the likelihood of a hard landing for the global economy – that is inflation returning to target while triggering a recession – had receded since October 2023.

Australia’s economy is forecast to expand by 1.5 per cent this year.