The IMF has forecast robust growth for the Australian economy, confirming only a modest slowdown as a result of the Asian financial crisis.
The IMF expects that Australia will continue to experience solid rates of economic growth in both 1999 and 2000. The IMFs forecast of growth in 1999 has been revised up to 4.0 per cent and inflation is forecast to remain at a low 1.8 per cent. Growth is forecast to slow a little in 2000, consistent with the outlook presented in the Budget. The IMF expects that Australias unemployment rate will continue to fall over 1999 and 2000.
The IMF expects world economic growth to continue to strengthen over the remainder of 1999, as economic recovery takes hold in Japan and the crisis-hit economies in Asia, on top of strong growth in the US and a trend improvement in Europe. For 2000, growth in Europe, Japan and Asia and other areas is expected to more than offset an expected slowing of the US economy. Inflation in advanced economies is expected by the IMF to stay low.
Given this improved world outlook, the IMF expects the Australian current account deficit to fall as a percentage of GDP in 2000, having peaked in 1999, and to decline over the medium term supported by real exchange rate depreciation, rising budget surpluses and the expected recovery in commodity prices.
While the IMF notes Australias level of foreign indebtedness, it recognises foreign direct investment as a stable form of foreign financing. It also notes that much foreign debt is denominated in local currency, and that short term debt is largely owed by our high credit rating banks. It notes Australias strong record with macroeconomic and structural policy.
The IMF notes that further efforts are needed to increase national saving, with the Governments tax reform package being helpful in that regard.