Australia faces a continuing deceleration in the world economy, with a new report by the IMF outlining a key global risk is a greater-than-anticipated China slowdown that would hit its foreign trading partners and commodity producing economies – like Australia – hardest.
China’s economy slowed to its lowest rate of growth in a decade in the fourth quarter, expanding 6.4 per cent compared to a year earlier, in line with economists’ expectations, official government data published on Monday showed.
The IMF cut its global growth forecasts for 2019 and 2020 and admitted recent weakness in economic data around the world was likely to persist over coming months.
“The global expansion has weakened,” the IMF said. “Risks to global growth tilt to the downside.”
The global economy is forecast by the IMF to grow 3.5 per cent this year and 3.6 per cent in 2020, down 0.2 and 0.1 percentage points on October’s projections and below the 3.9 per cent the fund tipped last April for 2019.
Global growth for 2018 was estimated to be a higher 3.7 per cent.
Mr Frydenberg said the strength of the domestic economy and the Coalition’s budget repair had given the government the “flexibility and resilience to respond to challenges as they arise”, in a possible sign that a fiscal injection was not off the table if the international outlook materially worsened.
Domestic economic momentum appears to have lost stream in recent months, partly due to a more cautious consumer delivering mixed Christmas retail sales, falling house prices denting consumer sentiment and business anxiety about an election, expected to be held in May.
Mr Frydenberg said the strength of the domestic economy and the Coalition’s budget repair had given the government the “flexibility and resilience to respond to challenges as they arise”. Mick Tsikas
Internationally, surprise weakness in major European economies such as Germany, Italy and France and fraught Brexit negotiations are compounding the negative impacts from the US-China tariff war and China’s broader economic moderation, the IMF said.
“A second source of systemic financial stability risk is a deeper-than-envisaged slowdown in China, with negative implications for trading partners and global commodity prices,” the IMF said.
About 30 per cent of Australia’s exports are shipped to China, including billions of dollars worth of iron ore, coal and liquefied natural gas.
The Commonwealth Bank Business Sales Indicator (BSI), a measure of economy-wide spending based on credit and debit card transactions tracked by the bank, fell 0.8 per cent in volatile seasonally adjusted terms in December, only the second decline in the past eight months, a report released Monday said.
“Spending across the economy is growing in line with longer-term averages,” CommSec chief economist Craig James said.
“Big-ticket items like cars are experiencing softer sales in response to slower growth of home prices and outright declines in some cities.”
The Washington-based IMF urged governments to “strengthen fiscal and financial buffers in an environment of high debt burdens and tighter financial conditions”.
“Fiscal policy should build buffers where needed to replenish limited policy space for combating downturns,” the IMF said.
Eyeing an election, the Morrison government has pledged to return the federal budget to surplus next financial year.
Shadow treasurer Chris Bowen has promised Labor’s tax rises will deliver bigger budget surpluses to shield the economy from mounting international economic risks.
Mr Bowen said it was “another report with a downgrade of global economic prospects that may impact on the Australian economy”.
“The IMF’s World Economic Outlook contains an important warning for Australia – and one that has thus far been ignored by Scott Morrison and Josh Frydenberg,” Mr Bowen said.
“Labor is the only major party with economic and tax policies designed to restore the fiscal buffers and pay down debt in a fair way.
“Unfortunately we have a treasurer who is more interested in the Labor Party than managing the economy, addressing anaemic wages growth or putting forward a positive plan for the economy.”
Mr Frydenberg said Australia was growing faster than any G7 country, except the US, and annual GDP growth was at 2.8 per cent, compared to 2.1 per cent when the Coalition came to government.
“Over 1.2 million new jobs have been created, driving unemployment down to 5.1 per cent, compared to the 5.7 per cent when we came to government.
“Annual average growth in spending is down to 1.9 per cent, the lowest of any government in 50 years and half of what it was under Labor and making possible a return to surplus and an end to the decade of deficits.
“In its annual review of the Australian economy late last year, the IMF delivered a positive economic report card, welcoming our budget management, strong economic growth, improved labour market conditions and housing affordability reforms.”
Prime Minister Scott Morrison last week tried to make an election issue out of the “storm clouds” in the global economy, warning the uncertainty meant voters should trust the Coalition, not Labor, to manage the economy.
Mr Bowen has said he has been warning of, and preparing for, a global slowdown for some time.
Global industrial production and manufacturing orders dropped markedly in December, including in Europe, China and much of Asia.
Outside of US-China trade tensions, a “no-deal” withdrawal of the United Kingdom from the European Union could also be a catalyst for economic and financial market disruption, particularly given high public and private debt levels, the IMF added.
The IMF did not disclose new forecasts for Australia in the limited, eight-page update.
In October it forecast Australia’s solid economic growth to peak at a six-year high of 3.2 per cent in 2018, before the US-China trade war weighs down the local export-dependent economy’s growth to 2.8 per cent pace in 2019.
Market economists have lowered their growth forecasts for Australia since then in light of softer national accounts for the September quarter that were published in December.
Separately the IMF in November ramped up concerns on risks to Australia’s economy from bulging household debt and high house prices.
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