An upbeat International Monetary Fund (IMF) has revised its outlook for Australia - as well as its global forecasts - predicting a surge in economic growth, lower unemployment and rebounding inflation in its latest annual World Economic Outlook.
IMF chief economist and director of research, Maurice Obstfeld (pictured, right), said global growth is now expected to rise from 3.1 per cent (in 2016) to 3.5 per cent this year and 3.6 per cent next year.
The IMF has lifted its growth forecasts for Australia and its major trading partners including the US, China, Britain, Europe, and Japan, although it expects Australia to remain in pole position as the fastest-growing economy among the 20 major advanced countries.
Obstfeld, speaking during a webcast press briefing from Washington, said the IMF now believes that global growth is picking up.
“Momentum has been building in the global economy since the middle of last year allowing us to reaffirm our earlier global forecasts of higher global growth this year and next,” he said. “This improvement comes primarily from good economic news out of Europe and Asia as well as our continuing expectation of higher growth this year in the US.”
According to Obstfeld, while growth would lift in the three advanced nations with resource-based exports - Canada, Australia and Norway - less developed producers would continue to struggle.
"Commodity prices have firmed since early 2016”, he said, but at low levels with many regions remaining challenged including Africa, Latin America and the Middle East.
The IMF noted that for Australia an acceleration in activity would be supported by “accommodative monetary policies, supportive fiscal policies or infrastructure investment, improving sentiment following the upturn in commodity prices, and less drag from declining investment in the commodity sector".
The IMF predicts that Australia’s unemployment rate will drop from its current level of 5.9 per cent to 5.2 per cent (well below the 5.5 per cent forecast in the December budget update) this year as economic growth improves by 0.6 per cent, from 2.5 per cent to 3.1 per cent.
Growth will continue in 2018, rising to 3 per cent, the IMF now predicts, with unemployment continuing to fall over the same period to just 5.1 per cent. The February review of the Australian economy predicted growth here would touch 2.6 per cent in 2017, a single percentage point rise from 2016, with unemployment at 5.8 per cent.
The IMF data comes as Australia enjoys its seventh successive year ranked in the top 10 of investment firm AT Kearney’s annual Foreign Direct Investment (FDI) Confidence Index. Released Wednesday, Australia is ranked 9th this year. According to AT Kearney, 35 per cent of executives are optimistic about Australia’s economic outlook, compared to 32 per cent last year.
“Relative to the rest of the world, Australia has seen unprecedented growth and stability. While there is broad and healthy acknowledgement that we need new answers going forward to sustain our economic growth, the fact that international investors remain interested in Australia is a good news story,” said Nigel Andrade, partner and head of Australia at AT Kearney.
Investors from Asia are the most optimistic about Australia and have ranked it the third most attractive destination, he added.
In fact, Australia has not had two consecutive years of growth of 3 per cent or more since before the 2008-09 financial crisis, with the most recent governmental data forecasting from the December budget update describing just 2 per cent in 2016-17 followed by 2.75 per cent in 2017-18. (IMF forecasting is based on calendar, rather than financial year.)
The IMF now expects inflation to climb from its currently low rate of 1.5 per cent to 2 per cent this year and to 2.6 per cent in 2018.
If Treasurer Scott Morrison follows suit from the IMF data in his May budget, the forecasts would provide a generous filip of anticipated revenue, bolstering government reform policy and aiding a sooner-than-expected return to surplus by 2020.