IMF cuts growth forecast for Australia as world economy picks up momentum

A child looks at a Christmas window display outside a department store in central Melbourne December 4, 2008. Reuters/Mick Tsikas

The International Monetary Fund on Tuesday has revealed it is raising its forecast for global growth to 3.6 percent this year. However, the economic institution has cut its growth forecast for the Australian economy due to weather-induced hitch.

The global recovery appears widespread, with three-quarters of the world dealing with an upswing. The United States, Japan and China are predicted to grow faster this year.

IMF chief economist Maurice Obstfeld said the improved outlook for the US did not include expectations that the US will pass big tax cuts. The 2.2 growth this year reflected US growth in the first half of 2017.

As for Australia, the IMF expects the nation’s gross domestic product to grow 2.2 percent. The new forecast was a reduction from its projection of 3 percent just six months ago.

The institution explained that bad weather in the first half of this year took a toll in the economy, housing investment and mining exports. Australia was said to be among those with infrastructure deficits, specifically in transport and communication technology.

Aside from Australia, the report stated that nations with deficits in infrastructure also include Canada, Germany, the United Kingdom and the US. “Priorities vary but, in most cases, include upgrading surface transportation and improving infrastructure technologies (in high-speed rail, ports, telecommunications, broadband), as well as green investments,” it reads.

Australia’s growth rate is likely to “soften temporarily” to 2.2 percent in 2017, according to the IMF, partly because “housing investment and mining exports in the first half of the year were undermined by bad weather.” The IMF said it see cyclical upswing boosting Europe, China, Japan, the US and Asia.

In a separate report, HSBC Australia chief economist Paul Bloxham said the nation’s 26 years of growth uninterrupted by recession was “important and worth acknowledging.” He recognised that the country “will almost certainly have a recession at some point.”

"However, what is clear is that over the past 26 years, the volatility of Australia’s economy has been much lower than at any other time in the country’s history and most other countries experiences,” he said.

World trade is forecasted to grow 4.2 percent this year. A pickup in industrial production, investment and consumer and business confidence also underpins better global outlook.

But the Washington DC-based fund said the global recovery is “incomplete” and governments will need to tackle some issues in their respective countries. These include stagnant wage growth.