The IMF's June World Economic Outlook (WEO) confirms that Australia's economic outlook and fundamentals remain strong, despite further financial instability and increased threats to the global recovery.
The IMF highlights that downside risks have intensified and the global economy remains unbalanced.
The deterioration in the global outlook is largely due to a greater than expected slowing in the US economy, renewed financial volatility associated with debt challenges in Europe and persistent fiscal and financial sector imbalances in many advanced economies. The WEO notes:
'Activity is slowing down temporarily, and downside risks have increased again...'
'...greater-than-anticipated weakness in U.S. activity and renewed financial volatility from concerns about the depth of fiscal challenges in the euro area periphery pose greater downside risks.'
The IMF expects global growth of 4.3 per cent in 2011, slightly down from its April forecast of 4.4 per cent. This is largely driven by lower than expected activity in the first half of 2011. The forecast for 2012 remains unchanged at 4.5 per cent.
The IMF has reduced its growth forecast for the United States to 2.5 per cent in 2011 (from 2.8 per cent in the April WEO), and to 2.7 per cent in 2012 (from 2.9 per cent in the April WEO).
Japan's growth forecast for 2011 has been cut dramatically, reflecting the impacts of the recent earthquake and tsunami, with the Japanese economy expected to contract by 0.7 per cent (compared to growth of 1.4 per cent in the April WEO).
However the IMF also notes that, in an uneven global recovery, the economic prospects for our region remain strong, particularly in China and India, which are forecast to grow at 9.6 per cent and 8.2 per cent respectively in 2011, unchanged from the April WEO:
'The global expansion remains unbalanced. Growth in many advanced economies is still weak, considering the depth of the recession [while] growth in most emerging and developing economies continues to be strong.'
Australia remains well positioned to benefit from robust growth in our region. Strong demand for our commodities is underpinning an unprecedented pipeline of business investment, with ABARES estimating a pipeline of $430 billion in resources alone.
This year's Budget takes important steps to prepare our economy for the Asian Century, firstly by delivering the fastest fiscal consolidation in at least 40 years. This will ensure we are not adding to inflation pressures that will come with a strengthening economy, and has been recognised by the Reserve Bank this week as 'playing a significant role'.
The Budget also makes historic investments in skills and training so that we can build the workforce we need to take full advantage of the opportunities ahead. With the Budget forecasting an extra 500,000 jobs in the next two years, on top of around 700,000 since the Government came to office, these investments in skills and training will ensure we spread the opportunities of Mining Boom Mark II to more Australians.
On top of these important Budget measures, the Government is also cutting company tax and extending the $5000 up-front tax write-off for small business to help those businesses which are not in the Mining Boom fast-lane, but which face challenges flowing from the boom.
The Budget forecast of Australian growth (4 per cent in 2011-12 and 3¾ per cent in 2012-13) far exceeds the IMF's growth forecast for advanced economies (2.2 per cent in 2011 and 2.6 per cent in 2012). Through a highly effective stimulus program and strong economic management, we have also avoided the stubbornly high unemployment rates that plague many of these countries. Unemployment is currently 4.9 per cent in Australia, compared to 9.1 per cent in the US and 9.9 per cent in the Euro area, reaching as high as 15.9 per cent in Greece.
The Government's economic and fiscal strategy has also seen Australia emerge from the global recession with lower debt than any of the major advanced economies. Net government debt is expected to peak at 7.2 per cent of GDP in 2011-12 and decline thereafter. Even at its peak, Australian's net debt will be less than one-tenth of the average of the major advanced economies.
While the IMF acknowledges that recent natural disasters and lingering effects of the GFC have led to some short term softness in the economy and lower budget revenues, our economic scorecard remains the envy of the developed world.