High interest rates, fallout from China’s troubled property sector pose challenges
The International Monetary Fund (IMF) has issued a warning about the Australian economy, stating that while the global economy is expected to avoid a recession, Australia faces challenges due to the fallout from China's troubled property sector and persistently high interest rates.
In the IMF's latest World Economic Outlook, released on Tuesday, it noted that although the global economy has shown resilience, growth remains slow and uneven, The Australian reported.
The IMF predicts that the Australian economy will expand by 1.8% this year, which is a slight improvement from previous forecasts of 1.6% in April. However, the outlook for 2024 is less optimistic, with growth expected to slow down to just 1.2%, a significant drop from the earlier forecast of 1.7%, according to The Australian.
Inflation is also expected to remain higher for a longer period compared to previous predictions. The IMF estimates that consumer prices will increase by 5.8% in 2023, followed by a 4% increase in 2024. It is unlikely that inflation will return to the Reserve Bank of Australia's target range of 2% to 3% until at least 2025.
Despite these challenges, the IMF predicts that Australia's unemployment rate will remain at 3.7% by the end of this year, which is below the Reserve Bank of Australia's forecast of 4%. However, it is expected to rise to 4.3% by the end of 2024, The Australian reported.
Treasurer Jim Chalmers acknowledged the global inflationary pressures highlighted in the report and expressed concerns about their impact on the Australian economy.
“The property sector crisis in China, high inflation and higher interest rates are all weighing on the global economy and will inevitably contribute to slower growth and weaker employment outcomes in Australia over the year ahead,” Chalmers told The Australian.
Chalmers also mentioned that the government's recently released Employment White Paper aims to address these deteriorating conditions. He said that the IMF's policy recommendations align with the economic plan of the Albanese government and the Employment White Paper.
Read next: Australia job gains show economy absorbing RBA moves
The global economic outlook presented by the IMF remains fragmented, with a projected slowdown from 3% growth this year to 2.9% in 2024. Advanced economies are expected to grow by just 1.5% this year, while emerging markets and developing economies may fare better, The Australian reported.
According to Pierre-Olivier Gourinchas, the IMF's top economist, the global economy is not sprinting but rather limping along. He highlighted the resilience of many emerging market economies, with the exception of China, which faces challenges from its real estate crisis and weakening confidence.
The report also indicates that inflation will likely remain high globally, with headline measures of price pressure expected to decline to 5.9% this year and 4.8% in 2024. However, core inflation, which excludes volatile food and energy prices, is expected to decline more gradually and remain at 4.5% next year.
The IMF report identifies ongoing commodity price shocks, climate and geopolitical tensions, and stresses in the banking system as key risks to global growth, The Australian reported. These factors contribute to the uncertain outlook for the world economy.
Have something to say about this story? Let us know in the comments below.
