Australia’s economy is the worst performer among developed markets: key IMF measure

An exterior view of the International Monetary Fund (IMF) headquarters is seen in Washington July 1, 2015. Reuters/Jonathan Ernst

The Australian economy is underachieving compared to other developed markets, the International Monetary Fund has said. The IMF looked into how the biggest economies in the world are performing relative to their potential.

The figures show that Australia’s economy is the worst performer among developed markets. The country falls short of its optimal output by nearly 2 percent of GDP.

When actual output is less than what an economy could generate at full capacity, a negative output gap occurs. It indicates spare capacity because of weak demand.

The IMF figures show the broader economy still falls well short of optimal levels. Despite this, some measures like employment figures and business conditions show that Australia is doing well. ANZ economists David Plank and Jack Chambers pointed out last week that recent GDP growth has been boosted by population growth.

Challenge for policy makers

Boosts in productivity must be a priority for policy makers in order for the country to maintain its 26-year run of uninterrupted growth. Last week, a five-yearly review with a list of policy options to improve productivity has been released by the federal government’s productivity commission.

In Australian Prime Minister Malcolm Turnbull's speech to the Asia Pacific Regional Conference in Perth, he said that "the epicentre of opportunity is shifting closer to Australia within Asia," adding, "And while the number of Chinese visitors in Australia surged 10 percent last year and 13 percent from Japan, they rose 15 percent from India and 23 percent from Indonesia.”

Turnbull also mentioned the nation’s participation in a China-centric trade deal and the Regional Comprehensive Economic Partnership. The goal is to create an open architecture that allows any country to join, given they meet its high standards. "We should not be afraid of policy ambition, at a time when the global economic system is fraying at the seams,” the prime minister said, adding that prosperity is a choice.

Private-sector lending grew at only 0.3 percent while business lending dropped 0.1 percent. Again, it was housing credit growth that propped up the overall figures, growing 0.5 percent for the month.

Meanwhile in the United States, the labour market bounced back from the hurricane season, with up to 235,000 private sector jobs added, according to data from payroll provider ADP. It was the highest jump since March and further proof of a strong US recovery. Conference Board figures revealed strong consumer confidence.