The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

27 January 2010


IMF World Economic Outlook Update, January 2010

The IMF in its latest World Economic Outlook released overnight is forecasting a strengthening global economy, but cautions that the recovery remains fragile in many parts of the world and that policy efforts are still needed to sustain the recovery.

The IMF's Global Financial Stability Report, also released overnight, highlights the improvement in the global financial system, but also points to significant remaining challenges.

The IMF's economic outlook provides more evidence that Australia has outperformed the developed world during the global recession. It shows again why Australians should be confident, though not complacent, about our economic prospects.

The IMF estimates that Australia grew by just under 1 per cent in 2009. This means Australia was the only advanced economy to record positive growth last year, and compares to an average contraction of 3.2 per cent for the advanced economies collectively. The IMF attributes Australia's good performance to the Government's timely and significant policy response to the crisis, robust demand for our commodities from China, our flexible exchange rate and our healthy banking sector.

The IMF notes that the global recovery is strengthening, driven by unprecedented monetary and fiscal stimulus. The IMF now expects the global economy to grow by 3.9 per cent this year, following an unprecedented contraction of 0.8 per cent last year - the first in the post-war era.

The IMF has also upgraded its forecasts for Australian growth, reflecting improved prospects for the global economy and the stronger-than-expected performance of the Australian economy in recent months. The IMF now forecasts that Australia will grow by 2½ per cent in 2010 and 3 per cent in 2011, which is in line with the Government's most recent forecasts released in the Mid-year Economic and Fiscal Outlook late last year.

This is considerably stronger than the recovery forecast for other advanced economies, which are expected to grow by 2.1 per cent in 2010 and 2.4 per cent in 2011. The IMF has cautioned that the recovery will be sluggish in most advanced economies, with the level of real output expected to remain below its pre-crisis levels until late 2011.

Despite the upward growth revisions, the IMF cautions that the recovery in many parts of the world remains fragile and is being supported by policy stimulus and temporary cyclical factors. The IMF notes that "There are still few indications that autonomous (not-policy-induced) private demand is taking hold, at least in advanced economies."

Against this backdrop, the IMF has cautioned against premature exit from stimulus and urged countries to maintain supportive policies until there is evidence of a self sustaining recovery in private demand: "Due to the still-fragile nature of the recovery, fiscal policies need to remain supportive of economic activity in the near term, and the fiscal stimulus planned for 2010 should be implemented fully."

In its update to its Global Financial Stability Report, the IMF notes that financial conditions remain fragile in a number of advanced, and emerging market economies. The report notes that "A top priority is to improve the health of these banking systems so as to ensure the credit channel is normalized." The report notes that "[f]or all countries the goal is to exit from the extraordinary public interventions to a global financial system that is safer, but retains the dynamism needed to support sustainable growth."

The Rudd Government continues to work through the G20 and the Financial Stability Board to address the underlying weaknesses in the global regulatory system. This will ensure that global financial markets contribute to sustainable global growth and not to the destabilising behaviour we have seen in recent years.

The Australian economy has outperformed all other advanced economies through the global recession, with stronger growth, lower unemployment, lower debt and lower deficits than other advanced economies. The Rudd Government is focused on ensuring that the national unity and effort that got us through the crisis is converted into sustained long-term improvements to our economy.

27 January 2010