IMF’s Economic Outlook Report Brings More Confidence to Australian PM

Prime Minister Scott Morrison addresses the media at Parliament House in Canberra, Australia, on April 10, 2022. Martin Ollman/Getty Images

The latest upgrade of Australia’s economic outlook by the International Monetary Fund (IMF) has prompted Prime Minister Scott Morrison to show further confidence in his economic plan.

According to the latest world economic outlook report, the projection of real GDP growth for Australia in 2022 rose to 4.2 percent from 4.1 percent in January’s report, while the global growth forecast dropped sharply to 3.6 percent from 4.4 percent.

“While they were downgrading global growth ... they upgraded growth for Australia, a vote of confidence in the economic plan,” Morrison told reporters in Adelaide.

However, Labor Shadow Treasurer Jim Chalmers said surging living cost pressures were hitting Australians hard.

“Hard-working families are being held back by pay that isn’t keeping up with prices,” he said, in comments obtained by AAP.

Meanwhile, the Westpac-Melbourne Institute leading index, which illustrates the likely pace of Australia’s economic activity three to nine months into the future, climbed to 1.71 percent, the highest level since May 2021.

This data suggested that the economy would grow beyond the long-run growth rate of 2.8 percent.

Westpac bank chief economist Bill Evans is predicting that the Australian economy will grow around 5.5 percent in 2022, which is higher than the IMF’s forecast.

This growth is facilitated by the rapid recovery in household spending due to the relaxation of COVID-19 restrictions, with 70 percent of that growth coming from the June and September quarters.

The seal for the International Monetary Fund is seen near the World Bank headquarters (R) in Washington, on Jan. 10, 2022. Stefani Reynolds/AFP via Getty Images

At the same time, dropping petrol prices has caused consumer confidence to go up slightly, boosting the recovery in spending.

The ANZ-Roy Morgan consumer confidence index increased 2.3 percent to 96.8 points in the week commencing April 11, reaching its highest level since March 6.

Nevertheless, the index is still below 100 points, indicating that there are more pessimistic consumers than optimistic ones.

In addition, household inflation expectations fell 0.5 percentage points to 5.3 percent during the same period, which is the lowest level since March 6 after petrol prices slumped for four consecutive weeks.

“Oil prices have risen more than 10 percent from the low at the beginning of last week, so it’s not clear if there is much more room for confidence to be boosted by lower petrol prices,” said ANZ head of Australian economics David Plank.

Data from the Australian Institute of Petroleum showed that the national average for petrol prices dipped by eight cents to $1.66 per litre (US$4.69 per gallon) in the week commencing April 11, declining further from the record price of above $2 a litre.

This is partly the result of the federal government temporarily halving fuel excise in March’s budget.

However, living cost pressures still remain high in the economy as observers expect that inflation figures to be released in the week commencing April 21 will rise significantly.

In the Reserve Bank of Australia’s (RBA) board minutes for April, it was noted that both inflation and wages growth had picked up, prompting the central bank to bring forward the likely timing of the first rise in interest rates

The RBA expected the underlying inflation in the March quarter to exceed three percent, above its inflation target range ceiling.

Nevertheless, it wanted to see the consumer price index for the March quarter and the wage price index for the same period before making its first move on monetary policy in over 16 months.