Australia’s economy up there with best: IMF
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.