Australia ‘not immune’ from global economic malaise

Global economy faces 'feeble and uneven' growth

Treasurer Jim Chalmers says Australia is on track to avoid a recession, despite the nation’s outlook being downgraded and a stalling international economy.

The International Monetary Fund delivered a downbeat prediction for the global economy in its latest outlook, warning high inflation coupled with financial system turmoil could bring near-recession conditions.

Dr Chalmers said neither Treasury nor the Reserve Bank were expecting Australia to slip into recession but the economy was forecast to slow.

“We are better placed than most countries because of lower unemployment, because of the prices we’re getting for our exports and some of the other advantages we have,” he told ABC Radio on Wednesday.

The International Monetary Fund predicted Australia’s GDP growth would stall to a lowly 1.6 per cent in 2023, followed by a 1.7 per cent lift in 2024.

The forecasts were slightly ahead of those for the US and Canada, while British economy was expected to shrink this year.

Dr Chalmers said each nation had its own combination of economic challenges.

“But as the IMF points out, we won’t be immune from a global slowdown,” he said.

Deputy Liberal leader Sussan Ley said the government needed to focus on cost-of-living pressures in its May budget to counter the worst of rampant inflation.

“There’s no start date to cheaper power prices. There’s no start date to cheaper mortgages but there’s a feeling people have been left behind,” she told Sky News.

“There’s no plan for tackling inflation when we wake up to news of deteriorating economic environment both nationally and internationally.

“It’s so important the government gets this budget right.”

Cost of living pressures continue to weigh on consumer confidence levels and work against the Reserve Bank’s decision last week to keep the cash rate on hold.

The pause in interest rate increases after 10 hikes in a row fed into the 1.1-point lift in the ANZ and Roy Morgan weekly consumer sentiment index.

Confidence among mortgage holders lifted by 3.9 points across the week.

But at 79.3, the index remains weak by historical standards and stuck below 80 points for the sixth week in a row.

IMF’s gloomy outlook

In its latest report, the IMF raised its 2023 core inflation forecast to 5.1 per cent from a 4.5 per cent prediction in January, saying it had yet to peak in many countries despite lower energy and food prices.

“Monetary policy needs to stay focused on price stability” to keep inflation expectations in check, IMF chief economist Pierre-Olivier Gourinchas said.

In a Reuters interview, Mr Gourinchas said central banks should not halt their fight against inflation because of financial stability risks, which look “very much contained”.

While a major banking crisis was not in the IMF’s baseline, Mr Gourinchas said a significant worsening of financial conditions could recur as nervous investors try to test the “next weakest link” in the financial system as they did with Credit Suisse.

The report included two analyses showing financial turmoil causing moderate and severe impacts on global growth.

In a “plausible” scenario, stress on vulnerable banks – some like failed Silicon Valley Bank and Signature Bank burdened by unrealised losses due to monetary policy tightening and reliant on uninsured deposits – creates a situation where “funding conditions for all banks tighten, due to greater concern for bank solvency and potential exposures across the financial system”, the IMF said.

This “moderate tightening” of financial conditions could slice 0.3 percentage point off of global growth for 2023, cutting it to 2.5 per cent.

– with AAP

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