While the global economy is set to avoid a recession, the fallout from China’s toxic property sector and persistently high interest rates point to an increasingly grim outlook for the Australian economy, the International Monetary Fund (IMF) has warned.
In its latest World Economic Outlook released on Tuesday, the IMF said although the global economy had displayed remarkable resilience and the chances of a “soft landing” were increasing, growth remained “slow and uneven”
The IMF outlook expects the Australian economy will expand by 1.8 per cent this year, revised higher from previous forecasts of 1.6 per cent in April.
But local economic growth is expected to be dragged lower in 2024, rising by just 1.2 per cent, a substantial drop on April forecasts of 1.7 per cent.
Revised forecasts show inflation will remain higher for longer, compared to last October’s predictions.
According to IMF estimates, consumer prices will grow by 5.8 per cent for 2023, followed by 4 per cent in 2024.
Inflation won’t return to the Reserve Bank of Australia’s 2 to 3 per cent inflation target until at least 2025, according to the forecasts.
However, the IMF predicts unemployment will be maintained at 3.7 per cent, below the RBA’s forecast of 4 per cent, by year’s end. The jobless rate will tick higher to 4.3 per cent by the end of 2024.
Speaking before the release of the October outlook, Treasurer Jim Chalmers said persistent global inflationary pressures identified in the report would weigh on the local 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,” Dr Chalmers said.
But the Treasurer said the government’s recent Employment White Paper would help the Australian economy counter the deteriorating conditions.
“The IMF’s policy prescriptions align squarely with the Albanese Government’s economic plan and the Employment White Paper” he said.
Global economic slowdown
Weighing on the outlook at home was a further decline in global economic growth, which is expected to slow from 3 per cent this year to 2.9 per cent in 2024, a 0.1 percentage point downgrade from April estimates, and well below the historical average.
The global economic outlook remains highly fragmented, the outlook warns, with the slowdown more pronounced in advanced economies, which are expected to grow just 1.5 per cent this year, rather than in emerging markets and developing economies.
“The global economy is limping along, not sprinting,” the fund’s top economist Pierre-Olivier Gourinchas in a statement accompanying the report.
“Many emerging market economies proved quite resilient and surprised on the upside, with the notable exception of China, facing growing headwinds from its real estate crisis and weakening confidence,” he said.
Inflation across the globe is expected to continue to remain high for an extended period with headline measures of price pressure expected to fall to 5.9 per cent this year and 4.8 per cent in 2024.
However, core inflation, a measure of price pressures which excludes more volatile food and energy prices, is expected to decline more gradually and will still be at 4.5 per cent next year.
“Most countries aren’t likely to return inflation to target until 2025,” Mr Gourinchas added.
Additionally, the report finds ongoing commodity price shocks amid climate and geopolitical tensions alongside stresses in the banking system are key risks to global growth.