The International Monetary Fund (IMF) today released an update of the World Economic Outlook, which reveals further deterioration in the global economic outlook since October. These are the second set of forecasts released by the IMF in less than a month — demonstrating how rapidly global events are unfolding.
Both the IMF and the Treasury are expecting a recession across major advanced economies, as a result of the worst global financial conditions since the Great Depression. The IMF now expects the global downturn will be deeper and more prolonged than it previously anticipated.
Global growth is projected to be 3.7 per cent in 2008 and 2.2 per cent in 2009. GDP in advanced economies is expected to fall by 0.3 per cent in 2009 – the first annual contraction during the postwar period. The IMF now expects a recession in the United States, the Euro area, the United Kingdom and Japan.
Like the Government, the IMF has said that the global financial crisis presents serious downside risks to the global economy amid an exceptionally difficult and uncertain environment.
Australia is not immune from these global difficulties, but we are better placed than most other countries to withstand the fallout.
While the global financial crisis is causing a global recession, Australia is expected to continue to record modest growth and compares favourably with most other advanced economies.
The IMF expects the Australian economy to grow by 1.8 per cent in 2008-09, which is broadly consistent with the forecasts in the Mid-Year Economic and Fiscal Outlook.
The IMF has highlighted the importance of Government action to strengthen financial markets and support economic growth.
Consistent with this, many countries are now discussing fiscal stimulus packages, with the IMF advising that fiscal stimulus can be made more effective if it is 'well targeted, supported by accommodative monetary policy, and implemented in countries that have fiscal space.'
The Rudd Government has already acted early and decisively through its Economic Security Strategyto strengthen our economy and support households during these difficult and uncertain times.
The Economic Security Strategy is expected to add half to one percentage point to GDP growth and create up to 75,000 additional jobs over the coming year.
This, along with recent interest rate reductions, means that fiscal and monetary policy are working in tandem to strengthen Australia's economy in the face of the global financial crisis.
Consistent with the IMF's call for better international financial sector policy coordination, the Government will continue to actively work with international counterparts, particularly through key forums such as the G-20, to coordinate an effective global response to the current turmoil.