Weaker mining exports and housing investment hurt by bad weather earlier this year have prompted the International Monetary Fund to cut its growth forecasts for the Australian economy.
In what appears to be a blip, the IMF’s latest World Economic Outlook released overnight has sharply revised Australian growth down to 2.2 percent in 2017 from projected of 3 percent just six months ago.
While Australia’s economy is expected to recover in 2018, the forecast has also been softened to 2.9 percent down from an anticipated 3 percent.
“Growth is expected to soften temporarily to 2.2 percent in Australia, where housing investment and mining exports in the first half of the year were undermined by bad weather,” the IMF says.
Treasurer Scott Morrison, in Washington for the IMF’s annual meetings, said he remains committed to the government’s own budget forecasts but will take the IMF’s outlook into account.
“We’ll obviously revise or review that as necessary as we go into the mid-year economic statement. That’s the time to do that,” Mr Morrison said.
While not rejecting the IMF’s revision, Mr Morrison pointed to “encouraging” economic data including the latest business survey from the NAB which described business conditions as rock solid.
“So the better days I spoke about in the budget is being borne out by this data and let’s not forget 325,000 Australians getting a job last year,” Mr Morrison said.
The IMF has cited the impact from Cyclone Debbie in March as a factor where delays in coal transportation triggered a decline in the coal price index which has since recovered by 16.5 percent.
The report says strong demand from China assisted in the price recovery in addition to labour dispute at Australian mines restricting supply.
The IMF has urged Australia to use low interest rates to deal with an “infrastructure deficit” alongside Canada, Germany, the United Kingdom and the United States.
It urges greater attention to upgrading surface transportation and improving technologies such as high speed rail, ports, telecommunication, broadband and green investments.
“After three decades of almost continuous decline, public investment in infrastructure and the stock of public capital as a share of output are near historic lows in advanced economies,” the IMF says.
“Many countries could take advantage of the favourable funding environment to improve the quality of the existing infrastructure stock and implement new projects.”
The IMF also raises concerns about stalling reforms to productivity and work practices once again singling out Australia in addition to Greece, Italy, Japan and Spain.
“Persistently sluggish productivity in some countries has led to greater emphasis on product and labor market reforms,” the IMF says.
“These reforms have been found to raise productivity and employment and to improve resilience to shocks.”
The IMF’s slight revision comes after 26 years of continuous economic growth in Australia where fallout from the global economic crisis was largely avoided because of the mining investment boom and government support to banks.
Cautious confidence about the global economy is based on the IMF forecasts for pickups in investment, trade and industrial production after a long period of slow growth and low inflation.
Further downgrades ahead.