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IMF Calls Australian GDP Down for 2017

Global economic growth will rise to 3.4% in 2017, but Australia’s Gross Domestic Product (GDP) will decline to 2.7%, according to the International Monetary Fund (IMF). The revised forecasts saw global growth rate expectations reigned in by 0.1%, largely thanks to Brexit and low growth rates in the US.

Commentators suggested that the Australian GDP forecast meant that interest rates would remain on hold for longer still, especially as the IMF considered the prospect of low or negative consumer price inflation was a significant risk. Australia’s target growth rate is between 2% and 3% per annum, so there is little panic, but plenty of policy interest, in the latest data.

The implication of a watchful but relaxed attitude is that even with the possibility of asset bubbles resulting from a continuation of lower interest rates – housing is of course the main area of relevance, but not the only one – the greater concern would be prices stagnating altogether and perhaps deflating.

The chart below shows the GDP growth expectations of selected countries, as it was reported in the Australian Financial Review on 5th October.

fig1

Of note is that global growth expectations appear to be reliant upon stronger growth in the USA, which has to date underperformed IMF expectations over the last two years. Equally of note is that economic growth in China is expected to shift marginally downwards for the third successive year, but is still expected to be a remarkable 6.2% for the year.

China continues to manage its transition away from export led growth to the internalization of demand and growth, although its capacity to earn export income is really only marginally abated from the peaks of three and four years ago.

As to Britain and its unfolding economic morass, Geoff Winestock of the Australian Financial Review commented:

“…expected growth in Britain in 2017 has been cut in half to just 1.1 per cent as the IMF remains convinced Brexit will hit confidence.”

With fully 20% of economies reported by the IMF as suffering from deflation or declining prices, it has signaled itself to be very focused on stimulation and economic growth, leading to inflation.

Back home, the newly minted Governor of the Reserve Bank of Australia, Philip Lowe, treaded the boards for the first time on the 18th October. He discussed global growth and Australia’s own growth and prices inflation. While avoiding hyperbolic concern about GDP and inflation, the topic is clearly near the top of the list at the RBA, even with Australia’s GDP forecast to fall within its long-term target bands.

 

Posted Date: October 31, 2016

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