Australians face a slowing economy, some of the worst inflation in the developed world and a weakening job market, according to key global player.
In its latest report, the International Monetary Fund paints a sobering picture of the Australian economy.
According to its figures, gross domestic product will stall, growing at just 1.6 per cent in the next year.
Jobseekers face a tougher road ahead too, with the IMF projecting the unemployment rate will peak at 4.7 per cent. This is up from the official unemployment rate of 4.6 per cent but well above the 4.3 per cent the IMF had forecast for 2027 back in April.
If the prediction pans out, this would be the largest increase in terms of percentage points among advanced economies.
It would also mean Australia would be one of just seven advanced economies to have a worsening jobless rate.
Australia’s inflation problem is set to continue despite the IMF expecting inflation to ease from 3.9 per cent this year to 3.1 per cent next year.
Australia would then have the fifth-highest inflation rate of advanced economies ahead of only Iceland, Greece, Austria and Andorra.
Plus, the rate would still be above the RBA’s target of between 2 to 3 per cent.
In response, Treasurer Jim Chalmers said the IMF confirmed what we already knew – the global economy was suffering because of the war in the Middle East.
“The war is pushing up global inflation, while pressures in financial markets, high global debt and reassessments of AI expectations all pose considerable downside risks.” he said.
“We are not immune from these global factors, but we are better placed than many others.”
In its report, the IMF recognised the effects of the war in Iran and the pressures on the global economy.
“A prolonged stalemate or further escalation in the Middle East could keep energy and food prices elevated and volatile, revive inflationary pressures, worsen fiscal and external balances and weigh on growth,” the IMF wrote.
Mr Chalmers also talked up the opportunities in the Australian economy with the AI rollout and said reducing debt had taken pressure off inflation.
“Many of the policy priorities the IMF recommends to all countries in this report are things we are already doing, like finding $180bn in savings since coming to government, banking upward revisions to revenue, investing in energy security and rolling out the largest productivity package decades,” he said.
The IMF repeated many of the same issues that RBA governor Michele Bullock had stressed in recent weeks, citing costs associated with the AI boom, rising oil prices, domestic inflation pressures and global debt levels were all hurting Australia and its peers.
NED-9108-Monthly-Inflation-Indicator
On Tuesday, the RBA warned of more rate pain for Australian mortgage holders as it talks tough on its fight against inflation.
In a grim update, the RBA said it would be willing to lift rates further if necessary.
“The board will remain focused on its mandate to deliver price stability and full employment and will continue to do what it considers necessary to achieve that outcome, including increasing the cash rate target further if required,” the board’s September minutes noted.
Tuesday’s minutes followed the widely expected cash rate hike a fortnight ago when the official cash rate was lifted by a further 25 basis points to 4.60 per cent.
This was the fourth interest rate hike in the board’s last six meetings and took the official cash rate to its highest level since 2011.