NO.016

IMF SAYS SOLID GROWTH TO CONTINUE

In its latest World Economic Outlook, the IMF provides a positive assessment

of the Australian economy’s performance during the global slowdown. According

to the IMF, strong economic growth in Australia has been underpinned by low

interest rates, the Government’s First Home Owners’ Grant and a competitive

exchange rate. The IMF expects that the Australian economy will continue to

experience solid economic growth over the remainder of 2002 and 2003, accompanied

by low inflation and falling unemployment.

The IMF forecasts that the Australian economy will grow by 3.9 per cent in

2002 and by 4.0 per cent in 2003. According to the IMF, continued strength in

the Australian economy will be supported by improvements in confidence and employment,

and an anticipated recovery in the world economy.

Australia’s expected growth rate is considerably faster than most other advanced

economies, with the US expected to grow by 2.3 per cent in 2002 and 3.4 per

cent in 2003 and the European Union expected to grow by 1.5 per cent in 2002

and 2.9 per cent in 2003. The Japanese economy is expected to contract by 1.0

per cent in 2002 and to grow by 0.8 per cent in 2003.

Importantly, the IMF says that solid economic growth in Australia is not expected

to generate significant price pressures, with inflation forecast to remain stable

at 2.3 per cent in 2002 and 2003. Moreover, the IMF expects the current account

deficit to decline to 2.7 per cent as a share of GDP in 2003. These strong macroeconomic

fundamentals are expected to lead to a reduction in the unemployment rate.

The IMF has revised world growth upwards from 2.4 to 2.8 per cent in 2002,

rising to 4.0 per cent in 2003, noting that confidence has stabilised and uncertainty

has eased. Nevertheless, the IMF says that there are significant risks for the

sustainability and durability of the upturn in the world economy and that recent

volatility in oil markets is of concern. The subdued outlook for the Japanese

economy also remains a concern for the Asian region.

The Government welcomes the IMF’s stronger assessment of the outlook for world

growth, but notes its expression of caution. The Australian economy is now well

placed to take full advantage of any upturn in the world economy when it arrives.

CANBERRA

18 April 2002