Australia compares favourably in IMF outlook

Australia compares favourably to other Western nations in the International Monetary Fund (IMF)’s World Economic Outlook with stronger growth, lower unemployment and much lower debt.

The world economy expanded at an annualised rate of more than 5 per cent in the first quarter of 2010, with a predicted end growth of 4.5 per cent while growth in 2011 is projected at about 4.25 per cent, according to the IMF.

Australia compared favourably to other advanced economies, with predicted growth of 3 per cent in 2010 and 3.5 per cent in 2011.

Deputy Prime Minister and Treasurer Wayne Swan noted that the Asian region was leading the recovery and that Australia was well placed to continue to benefit from its proximity to developing Asia.

While G20 nations have committed to at least halving their budget deficits by 2013, Australia will be returning to surplus in 2012-13, well ahead of any other advanced economies, he said.

Recent volatility reflected a drop in confidence in global fiscal sustainability and growth prospects, partially fuelled by concerns over the situation in Greece and other vulnerable European economies, according to the IMF report.

Despite these concerns, the IMF predicted the global recovery would continue. Inflation will likely remain subdued at around 1.25 to 1.5 per cent — although this would likely edge up past 6 per cent in developing economies in 2010.

The IMF also warned of a sharp rise is downside risks as financial stress and contagion led to rising concern over sovereign risk, potentially leading to increased funding costs and tighter lending conditions.

The policy challenge is in restoring market confidence without choking the recovery, particularly in the euro zone. This will include resolving uncertainty about bank exposures to sovereign debt and ensuring European banks have adequate capital buffers, while global policy should focus on lowering deficits, maintaining supportive monetary conditions, accelerating financial reform and rebalancing demand, the IMF said.

The Australian Government will be introducing a range of reforms to further strengthen the economy including cutting business taxation, reducing red tape for small business, boosting savings and investing in infrastructure, as well as introducing a range of tax cuts from 1 July, Swan said.