IMF happy with Australia's economy and strong policy
Staff Writer |
The Executive Board of the International Monetary Fund (IMF) concluded the 2016 Article IV consultation with Australia.
Article continues below
Australia has enjoyed robust growth despite the commodity price and mining investment bust.
The moderate impact of the large shocks since 2011 highlights the resilience of the economy and strong policy frameworks.
From mid-2015, the recovery advanced with a marked pickup in activity, although underlying demand growth remained close to trend. Nevertheless, Australia has not been immune to some elements of the “new mediocre.â€
Wage and price pressures have been weak, underemployment has risen, and private business investment outside mining has been lackluster.
By some metrics, housing market conditions have cooled, in tandem with intensified prudential and regulatory steps, but risks related to house price and debt levels remain.
In the continued low interest rate environment, house prices and household debt have risen further but house price growth has moderated. Intrinsic housing market risks are localized.
Bank lending to household has slowed, especially in riskier loans, and banks have strengthened their balance sheets.
With inflation below the target range of 2-3 percent and a downshift in the path of inflation expectation in 2016, the Reserve Bank of Australia (RBA) lowered its policy rate by another 50 basis points to 1.5 percent. Core inflation has since stabilized at around 1.6 percent.
Wage growth has remained weak, with nominal unit labor costs running at less than 0.5 percent on average, and cost pressures have been virtually absent suggesting that some economic slack is still present.
Executive Directors noted that Australia’s robust economic growth and low unemployment during the current terms-of-trade adjustment reflect the resilience of the economy and strong policy frameworks.
While the balance of risks to the growth outlook has improved, there remain significant risks and uncertainties, notably weaker-than-expected domestic consumption, housing-related vulnerabilities, the rise in protectionist policies in the global economy, and a significant slowdown in Australia’s main trading partners.
Against this background, Directors stressed the importance of maintaining supportive macroeconomic policies, addressing macro-financial vulnerabilities, and boosting long-term potential growth.
Directors noted that continued demand support is needed to ensure a smooth transition to non-mining growth.
They agreed that, with inflation below target, still elevated underemployment, and remaining economic slack, the monetary policy stance should remain accommodative.
Directors welcomed the authorities’ readiness to ease monetary policy further if warranted, and encouraged steps to improve policy communication. ■