In advanced economies including Australia, economic growth is generally expected to be solid despite a decline in production and growth rate, the International Monetary Fund said on Tuesday in its flagship World Economic Outlook.
“Australia’s projected growth of 2.8 percent in 2015 is broadly unchanged from the October prediction, as lower commodity prices and resource-related investment are offset by supportive monetary policy and a somewhat weaker exchange rate,” the report says.
However, the Washington-based institution predicts that Australian economy is posed to be hurt due to regional economic trends, especially slowdowns in its largest trade partners, including China, Indonesia, and Japan, provided a counterweight.
“The downturn in the global commodity cycle is continuing to hit Australia’s economy, exacerbating the long-anticipated decline in resource-related investment. However, supportive monetary policy and a somewhat weaker exchange rate will underpin nonresource activity, with growth gradually rising in 2015–16 to about 3 percent,” the report says.
However, in economies such as Australia, Japan, Korea, Thailand in which output gaps are currently negative, policymakers may need to act to prevent a persistent decline in inflation expectations.
Export volume growth declined, reflecting soft demand in China, the euro area, and Japan, which more than offset buoyancy in the United States. Investment was generally slower, especially in China, where the correction in real estate gathered pace.
“Significantly slower growth than currently projected for China or Japan would also affect the rest of the region and the world economy given these economies’ large size and deep trade and financial linkages with other nations”.
Exporters of commodities in the region including Australia, Indonesia, Malaysia, New Zealand is predicted to see a drop in foreign earnings and a drag on growth, although currency depreciation will offer some cushion. Headline inflation—already on a downward trend on cooling growth and stronger trade-weighted exchange rates—is expected to moderate further as the recent oil price decline is felt at the pump, although core inflation has eased only modestly.
A decline in China’s real GDP growth from 7.4% in 2014 to 6.8% this year is expected to further lower demand for Australian commodities.
