The International Monetary Fund (IMF) Executive Board has concluded its Article IV consultation with Australia, endorsing the staff appraisal without a meeting on a lapse-of-time basis. This assessment comes amid Australia's slowing economic growth, which dipped to 1.0 percent in the second quarter of 2024 from 1.9 percent the previous year.
Key factors contributing to this slowdown include reduced private consumption growth and eased private business investment. Public demand and infrastructure projects provided some support to economic activity. The labor market showed signs of softening, with unemployment at 4.1 percent as of September 2024, although job creation remained robust.
The IMF's report highlights several challenges facing Australia's economy. Inflation has decreased from post-pandemic peaks but remains a concern due to underlying pressures in non-tradable sectors. Housing prices have risen above pandemic levels, with rents increasing amidst low vacancy rates.
Looking ahead, economic growth is projected to gradually improve from 1.2 percent in 2024 to 2.1 percent in 2025, supported by real income growth from rising wages and tax cuts that may enhance private consumption. However, unemployment is expected to rise slightly to 4.5 percent.
Risks to Australia's macroeconomic outlook are predominantly on the downside, including persistent labor market tightness and fiscal impulses that could hinder disinflation efforts. External risks such as weakness among major trading partners and geopolitical tensions also pose challenges.
In response, the IMF recommends that near-term policies focus on managing inflation while fostering growth through a restrictive monetary stance complemented by non-expansionary fiscal policy measures.
For medium-term stability, broader tax and expenditure reforms are advised to address structural deficits and promote economic efficiency while ensuring long-term fiscal sustainability.
Financial sector policies should aim at preserving stability amid localized vulnerabilities arising from tightened conditions in housing markets.
Efforts towards enhancing productivity growth are also encouraged through competition policy reforms and leveraging AI technologies for innovation.
Finally, Australia's commitment to multilateral solutions is acknowledged as crucial for avoiding distortions both domestically and internationally in its green industrial policy initiatives.