Rates a threat to growth

AUSTRALIA’S return to stable economic growth will be aided by brightening prospects among its overseas counterparts, according to the International Monetary Fund.

But central banks could yet play a spoiling role by cranking up interest rates too swiftly, the fund says.

In an update to its World Economic Outlook report yesterday, the IMF said global economic growth was on track to accelerate this year and next, at a pace of 3.5 per cent and 3.6 per cent, respectively.

Those projections are unchanged from the IMF’s April report, with contributions from China – tipped to grow at 6.7 per cent this year – and the eurozone, at 1.9 per cent, up slightly from three months ago.

But gross domestic product growth in the US this year has been wound back to 2.1 per cent, from April’s 2.3 per cent forecast.

The IMF says that change reflects a perceived lack of appetite at the US Federal Reserve for further immediate rate rises.

Following weaker-than-expected first quarter growth, the US has delivered middling results for factory output, retail sales and job gains over the past couple of months, while inflation – a key driver of wages – remains subdued.

IMF chief economist Maurice Obstfeld said if US rates climbed faster than expected, it “could tighten global financial conditions and trigger reversals in capital flows to emerging economies”.

A basket of advanced economies, including Australia, is projected to grow 2 per cent this year and 1.9 per cent in 2018. Emerging economies are tipped to hit 4.6 per cent GDP growth this year and 4.8 per cent next year.