The IMF expects Australia’s strong economic performance to continue. The Australian economy is forecast by the Fund to grow by 2.6 per cent in 2005 and by 3.3 per cent in 2006.
The IMF commends the Government’s budget management, stating that: “Fiscal positions remain strong, characterized by budget surpluses and low and declining government debt”. This provides a strong foundation for the economy to respond to future economic shocks and meet the challenges posed by population ageing.
While the IMF expects world growth to moderate after growing at its fastest rate in around 30 years in 2004, the current expansion is expected to retain significant momentum. World output is forecast by the IMF to expand at above-trend rates of 4.3 per cent in 2005 and 4.4 per cent in 2006. Near-term risks highlighted by the Fund to the global outlook include continued high and volatile oil prices and an increased reliance on the United States and China as engines of growth.
The IMF draws attention to the medium-term challenges posed by global current account imbalances, pointing out that to date, little progress has been made in implementing policies to address structural weaknesses underpinning these imbalances. The IMF’s key message is that countries should use the current period of economic prosperity to press ahead with structural reforms which would improve their capacity to respond to economic shocks and add impetus to economic growth.
The IMF highlights that the pressures of an ageing population underscore: “the need to press forward with reforms to increase labor participation; boost productivity, which despite recent progress is still well below U.S. levels; and keep health and pension spending on a sustainable path”. As the IMF noted in its recent Article IV examination of Australia, implementation of the Government’s reform agenda: “would move Australia to the forefront of defining international best practice in the area of structural policies to address the economic implications of ageing, as it is now in the area of macroeconomic policies”.
The Government remains committed to sound macroeconomic policy frameworks and to reforms which will sustain Australia’s remarkable economic performance.