Aus­tralia’s econ­omy up there with best: IMF

The Australian - - THE NATION - DAVID UREN ECO­NOM­ICS EDI­TOR

Aus­tralia’s eco­nomic growth will be among the best in the ad­vanced world over the next two years, with the In­ter­na­tional Mone­tary Fund pre­dict­ing fur­ther sup­port from strong com­mod­ity mar­kets.

The fund’s re­view of the global econ­omy, re­leased overnight, said a re­cov­ery in busi­ness in­vest­ment in ad­vanced coun­tries and in house­hold spend­ing in emerg­ing coun­tries was lift­ing eco­nomic growth across the world.

“Growth this broad-based and strong has not been seen since the world’s ini­tial sharp 2010 bounce back from the fi­nan­cial cri­sis of 2008-09,” the fund’s chief econ­o­mist, Maurice Ob­st­feld, said.

“The syn­chro­nised ex­pan­sion will help dis­pel re­main­ing lega­cies of the cri­sis by speed­ing the exit from un­con­ven­tional mone­tary poli­cies in ad­vanced economies, en­cour­ag­ing in­vest­ment and heal­ing labour mar­ket scars.”

The Re­serve Bank has also en­dorsed the strong out­look. Min­utes from its last board meet­ing re­leased yes­ter­day high­lighted the re­cov­ery in both house­hold spend­ing and busi­ness in­vest­ment, pro­vid­ing a pos­i­tive back­drop for next month’s fed­eral bud­get.

The IMF pre­dicts Aus­tralia’s growth will ac­cel­er­ate from 2.3 per cent last year to 3 per cent over 2018, lift­ing to 3.1 per cent in 2019.

The fund ex­pects growth will be suf­fi­cient to bring the un­em­ploy­ment rate down from 5.6 per cent to 5.3 per cent this year with a fur­ther drop to 5.2 per cent next year.

Scott Mor­ri­son flagged the bud­get would re­flect the im­prov­ing global and do­mes­tic eco­nomic con­di­tions. “As we go into this year’s bud­get, this lat­est re­port from the IMF pro­vides a fur­ther en­dorse­ment of the gov­ern­ment’s eco­nomic out­look that un­der­pins our fore­casts,” the Trea­surer said.

Aus­tralia’s growth rate over the next two years will be faster than any of the seven largest ad­vanced economies.

The IMF fore­casts, for a cal­en­dar year, show growth lift­ing ear­lier than Trea­sury an­tic­i­pated in its mid-year bud­get up­date in De­cem­ber. That pre­dicted growth would av­er­age 2.5 per cent over 2017-18 be­fore reach­ing 3 per cent in 2018-19. The RBA’s lat­est fore- casts tipped growth would av­er­age 3 per cent this year and 3.25 per cent next year.

The min­utes of the bank’s April board meet­ing show it be­lieves growth was de­pressed in 2017 by a de­cline in ex­port vol­umes.

House­hold con­sump­tion and busi­ness in­vest­ment made strong con­tri­bu­tions, with do­mes­tic de­mand ris­ing by about 3 per cent over the year to the De­cem­ber quar­ter.

“Given the mo­men­tum in do­mes­tic de­mand and ex­pec­ta­tions that the de­cline in ex­port vol­umes would be tem­po­rary, mem­bers noted the econ­omy ap­peared likely to record faster growth over 2018 than the pre­vi­ous year,” the Re­serve Bank min­utes said.

Busi­ness in­vest­ment was un­usu­ally de­pressed in most ad­vanced economies since the fi­nan­cial cri­sis, de­spite record low in­ter­est rates, but the IMF said con­di­tions turned last year, in­creas­ing ad­vanced econ­omy growth by 0.6 per cent to 2.3 per cent.

In­vest­ment will con­tinue ris­ing from a low base this year, sup­ported in part by US tax cuts and in­fras­truc­ture spend­ing. The IMF ex­pects US growth to hit 2.9 per cent this year, 0.2 per cent more than it’s fore­cast in Jan­uary and 0.7 per cent more than last Oc­to­ber. How­ever, the fund ex­pressed con­cern that the re­sult­ing blow out in the bud­get deficit would re­sult in “un­sus­tain­able debt dy­nam­ics over the next five years”.

The lift in busi­ness in­vest­ment has brought a re­cov­ery in world trade growth, which rose from 2.3 per cent to 4.9 per cent in 2017, with fur­ther growth to 5.1 per cent in prospect this year. Grow­ing de­mand has boosted com­mod­ity prices. Oil prices rose 23 per cent last year, and a fur­ther 18 per cent gain is in prospect this year, while non-fuel com­modi­ties rose by 6.8 per cent in 2017 and are fore­cast to rise 5.6 per cent this year be­fore sta­bil­is­ing with a fur­ther 0.5 per cent rise in 2019.

The IMF re­mains con­cerned that growth could be de­railed by ris­ing ten­sion over trade be­tween the US and China.

“The mul­ti­lat­eral rules-based trade sys­tem that evolved af­ter World War II and that nur­tured un­prece­dented growth in the world econ­omy needs strength­en­ing. In­stead, it is in dan­ger of be­ing torn apart,” Mr Ob­st­feld said.

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