NO.028

IMF Predicts Favourable Economic Prospects for Australia

The IMF has confirmed that Australia’s economic fundamentals remain sound.

In its latest World Economic Outlook (WEO), the IMF expects world activity

in 2001 to be weaker than previously indicated, forecasting growth of 3.2 per

cent. Contributing to the weaker outlook is a greater-than-expected slowdown

in the United States, weaker though still solid growth in Europe, a deterioration

in the outlook for Japan and slower growth in Non-Japan East Asian countries.

The IMF maintains that there are reasonable prospects that the international

slowdown will be short-lived, with growth expected to pick up to 3.9 per cent

in 2002.

Against the backdrop of a weaker external environment, and the temporary weakness

in the domestic housing sector, the IMF has forecast economic growth in Australia

of 1.9 per cent in 2001. This follows Australia’s impressive economic

performance over recent years, recording very strong growth with low inflation.

Reflecting the strength of Australia’s economic fundamentals, the IMF

has forecast a solid rebound in economic growth of 3.5 per cent in 2002, with

the unemployment rate resuming its downward trend.

The IMF also suggests that the very solid rebound in Australian economic growth

is expected to continue to occur in combination with low ongoing inflation.

In 2002, the IMF expects consumer prices to increase by 2.4 per cent, firmly

within the Reserve Bank of Australia’s medium-term inflation target band.

Australia’s current account deficit is also expected to decline over 2001

and 2002.

The IMF notes that the fall in the value of the Australian dollar over the

last year has partly reflected the strength of the US dollar. The IMF also

points out that, against the backdrop of sound fundamentals and favourable

economic prospects, the main driving forces underpinning the Australian dollar

in the past do not appear to explain its recent movements.

The IMF also highlighted Australia’s success in completing major tax reform

and its recent enactment of measures aimed at fostering innovation.

The Treasurer will attend the Spring Meetings of the IMF and World Bank in

Washington on 29-30 April 2001. The discussion at these meetings will

include the world economic outlook, poverty, growth and crisis prevention as

well as recent developments at the IMF and World Bank.

CANBERRA

26 April 2001