IMF Downgrades Australian Economic Outlook

The International Monetary Fund (IMF) has highlighted the damaging effect the iron ore slump is having on Australia, as the Treasurer seeks a discussion with the Chinese finance minister on the matter.  In its latest world outlook, the IMF forecasts Australia’s economy will grow by 2.8 per cent this year, which is slightly down on its previous prediction in October of 2.9 per cent.

The slump in iron ore is largely to blame, dragging metals prices down 15 per cent since September last year and the IMF warns the pain is not over yet.  “Average annual metal prices are expected to decline 17 per cent in 2015 … and then fall slightly in 2016,” the report says.  It does not expect metals prices to stabilise until 2017.

Lower interest rates and a weaker currency are helping to sustain growth, but the IMF says the Reserve Bank has more work to do.  The report raises concerns that inflation in Australia could continue to fall, which would have serious consequences for wages and consumer spending.