Thursday, April 19, 2012
This will be at the same time as a fiscal tightening 2? times more severe than in Europe, and a sharp fall in our export prices. If we achieve that, it will be heroic, not to say improbable.
Essentially, the IMF has backed Treasury's forecasts - Australia has a history of getting upset if it doesn't - but the absence of any commentary on Australia in the 400 pages of reports released this week is hardly a ringing endorsement.
It predicts that Australia will grow by 3 per cent this year, and 3.5 per cent next year and thereafter. Inflation will stay within the Reserve Bank's target band.
Prices for coal and iron ore, our two biggest exports, will plunge 25 per cent over 2012 and 2013, sending our current account deficit back up again.
The IMF does not say Australia "will outperform every other major advanced economy in the world", as Julia Gillard and Wayne Swan wrongly claimed yesterday.
The IMF does not endorse Australia's bipartisan policy of pushing the budget into surplus in 2012-13, regardless of the effect of growth.
It implies the opposite: its board of directors and its chief economist, Olivier Blanchard, urge low-debt countries (such as Australia) to "reconsider the pace of consolidation" and rely on "automatic stabilisers" growth-lifting revenues and cutting welfare bills to "reduce deficits over time".
Two key points. The IMF's forecasts are just forecasts. Two years ago, it forecast Australia to grow 3.5 per cent in 2011. A year ago, it cut that to 3 per cent.
The real outcome, as Tony Abbott notes, was growth of just 2 per cent. Its forecasts rarely differ significantly from Treasury's: it doesn't work that way.
What matters in the IMF's World Economic Outlook is not what it says about Australia but what it says about the world. And that is very true this time.
For the world economy, it is hopeful, but not confident. It forecasts growth to be a subdued 3.5 per cent this year, rising to 4 per cent in 2013. But Blanchard depicts the global scene as "uneasy calm: one has the feeling that at any moment things could get very bad again".
The IMF sees three main risks. The biggest is Europe's fragile repair job last December. While the progress is encouraging, it says, the problems remain unsolved, and excessive fiscal tightening risks another collapse, potentially breaking the eurozone apart. If that happens, it warns, the financial cataclysm could make 2008 look good.
Second, an attack on Iran might blow global oil prices sky-high, taking the "fragile" recovery with them.
And third, to fix their balance sheets, Europe's stressed banks might impose a credit crunch that would send a shockwave around the world even here.
Blanchard says the top priority is "to durably increase growth and decrease unemployment" in advanced economies.
"We think that wherever it is possible, automatic stabilisers should be left to play," he said. "This is a remark about Spain, and other countries as well."
Are you listening, Treasurer? Prime Minister? Opposition Leader?