IMF predicts synchronised slowdown in global growth, warns rate cuts are not enough to stop it

| 16.10,19. 04:59 AM |

IMF predicts synchronised slowdown in global growth, warns rate cuts are not enough to stop it

Photo: Reserve Bank governor Philip Lowe has repeatedly called on the Federal Government to undertake greater fiscal stimulus. (AAP: Darren England)

Australia has been caught up in a sharp downturn being forecast for the global economy as headwinds from the US-China trade war and Brexit tensions bite into growth.
The International Monetary Fund is predicting a "synchronised slowdown" with global growth in 2019 downgraded once again to 3 per cent — noting a "serious climbdown" from 3.8 percent in 2017.
The slowest pace of growth since the global financial crisis is being blamed on rising trade barriers and higher uncertainty from swirling geopolitical issues, which are putting a dent in manufacturing and global trade.
In its latest World Economic Outlook, the IMF says Australia's economy will weaken to 1.7 per cent growth in 2019, down a full percentage point from 2.7 percent in 2018.
In a statement reacting to the gloomy outlook, Treasurer Josh Frydenberg confirmed that while the fundamentals of the Australian economy remain sound, "we do face headwinds".
"We have a AAA credit rating, record labour market participation and welfare dependency at its lowest level in three decades. We are in our 29th year of consecutive economic growth — a record unmatched by any other developed nation," Mr Frydenberg said.
"But the international challenges are a stark reminder of why we must stick to our economic plan which will deliver lower taxes so Australians can keep more of what they earn, more infrastructure to create jobs and boost productivity."
Mr Frydenberg said returning the budget back to surplus remained a priority despite the outlook for a slowing economy.
While not singling out Australia, the IMF has warned that action by central banks in slashing interest rates close to zero won't be enough to stimulate economic growth and urged greater government spending.
"Monetary policy cannot be the only game in town and it should be coupled with fiscal support where fiscal space is available," the IMF says.
RBA likely to follow global trend of more cuts
Reserve Bank governor Philip Lowe has repeatedly called on the Federal Government to undertake greater fiscal stimulus such as more infrastructure spending with cash rate now at a historic low of 0.75 per cent.
Shadow Treasurer Jim Chalmers jumped on the IMF's call for greater fiscal stimulus and urged the Morrison Government to review its budget commitments, citing "collapsing confidence and weak growth".
"It is time Josh Frydenberg and Scott Morrison brought forward a budget update to fix their forecasts and properly outline an economic plan that supports the floundering economy and better safeguards Australians from global turbulence," Mr Chalmers said.
"The IMF's updated forecasts make a mockery of Josh Frydenberg's claims that the Morrison Government has the right policy settings."
The IMF has noted that while growth is expected to pick up "modestly" in 2020, there are significant risks of financial vulnerabilities growing through "lower for longer" interest rates.
With central banks in the United States and Europe expected to continue cutting interest rates, Australia's Reserve Bank is likely to follow the global trend.
The minutes from the Reserve Bank's most recent meeting signalled another rate cut for mid-2020 to deal with a slowing economy.
However, money markets see a 41 per cent chance of a rate cut in November on Melbourne Cup day as pressure ratchets up on commercial banks to pass any rate cut on in full to borrowers.
Follow Peter Ryan on Twitter @peter_f_ryan


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