In its latest report on the Australian economy, the International Monetary Fund (IMF) has forecast growth will improve to its long term trend by 2017 and has endorsed key Government initiatives.
The IMF forecasts economic growth to be 2.6 per cent this year and 2.7 per cent in 2015, and projects growth to rise to its long term trend rate of 3 per cent by 2017. This is consistent with the outlook in the 2013-14 Mid-Year Economic and Fiscal Outlook.
Risks to the outlook include a slowdown in China and further volatility in global financial markets. However, the IMF observes that Australia has policy space to respond should these risks eventuate, and that our floating exchange rate provides a key cushion against shocks.
The IMF notes that our economy is in a transition phase as we move beyond the mining investment boom. In this context, it welcomes the recent revival in the housing market and argues that construction could play an important role in supporting growth during the transition. Further, this development could help to address long-standing supply shortages in our housing market.
The IMF points to the increase in Australia’s public debt in the aftermath of the global financial crisis, and firmly endorses the Government’s goal of improving the budget position over the medium term.
To achieve this goal, the IMF notes that sizeable reductions in spending or an increase in revenue would be required. This message reinforces the Government’s position that difficult decisions will need to be made in order to put the budget back onto a sustainable path. The IMF acknowledges that the Government’s National Commission of Audit will play a key role in guiding decisions to this end.
As the Government has identified, improving productivity will be a key challenge and the IMF says that addressing infrastructure bottlenecks should be a priority. This underlines the importance of this Government’s focus on working with the private sector to provide the infrastructure that Australia needs.
The IMF strongly endorses Australia’s banking sector and finds that our banks’ balance sheets have strengthened in the past year. The Fund’s stress tests show they would be able to withstand sizeable shocks. Further, the Fund endorses Australia’s regulatory and supervisory framework and highlights the importance of close cooperation between our financial regulators.
Overall, the IMF report provides a strong endorsement of key Government policy preparation.