IMF Lowers Outlook for Australia

April 20th, 2015

According to the report, "Average annual metal prices are expected to decline 17 per cent in 2015 ... and then fall slightly in 2016 ... The downturn in the global commodity cycle is continuing to hit Australia’s economy, exacerbating the long-anticipated decline in resource-related investment... Exporters of commodities (Australia, Indonesia, Malaysia, New Zealand) will see a drop in foreign earnings and a drag on growth, although currency depreciation will offer some cushion.” ;

While China's slowing economy is also a concern for Australia, IMF deputy research director Gian Maria Milesi-Ferretti has described it as a “good slowdown” based on sustainable growth patterns. China is still expected to be the second fastest growing major economy in the world after India, with Chinese authorities seeking sustainable growth after years of record high GDP. While falling commodity prices and slowing growth in China will continue to shock the Australian economy periodically, Australia continues to put faith in this valuable relationship.

Inflation is also a serious concern in Australia according to the IMF, with the headline consumer price index now lower than the recommended 2-3 percent level at 1.7 percent. If inflation in Australia continues to fall, there could be serious consequences for wages and consumer spending. "In economies in which output gaps are currently negative (Australia, Japan, Korea, Thailand), policymakers may need to act to prevent a persistent decline in inflation expectations," the IMF report stated.

According to a separate but related IMF report released in recent days, Australia has the world's worst debt trajectory. If things continue on their current course, debt is set to grow from 17 percent of GDP in 2014 to 22.4 percent in 2020, a 32 percent increase. Only Lithuania comes close to facing such a deterioration, with the debt increase in Australia more than 10 times the 3 percent rise that is expected in the United States. The IMF has criticised how governments around the world have handled debt over the last three decades, berating politicians for overspending during good times rather than preserving funds.