Australia fails to live up to International Monetary Fund forecast

Treasurer Scott Morrison

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The fund now expects growth in the euro area of 2.1 percent this year and 1.9 percent next, both up 0.2 point from three months ago, as the currency zone's prospects strengthen on the pickup in global trade, ongoing strength in domestic demand and diminished political risk.

Among the low-income countries in the sub-Saharan region, the report forecast continued high growth in Ethiopia, at 8.5 percent in 2017 and 2018.

Hopes that sterling's weakness would boost manufacturing exporters - offsetting some of the slowdown in the dominant services sector - have so far proved largely elusive.

Activity in the United Kingdom slowed more than anticipated in the first half of 2017; as for the USA, given the significant policy uncertainty, the forecast now uses a baseline assumption of unchanged policies, whereas in April it assumed a fiscal stimulus driven by then-anticipated tax cuts.

Highlighting the growing income inequality within and among emerging market economies, International Monetary Fund said a country's growth rate does not always foretell matching gains in income for the majority of the population.

It reiterated its call for national governments to support growth through investment and not rely on central bank support.

For the medium term, the report says the UK's growth outlook is highly uncertain and will depend in part on the new economic relationship with the European Union and the extent of any increase in barriers to trade, migration and cross-border financial activity.

Several countries have had their forecast upgraded - the largest changes this year are for Canada, Russia (partly because of stabilising oil prices) and Brazil, where the figures are still rather weak, but an improvement on the sharp contractions of the previous two years.

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Releasing its latest World Economic Outlook in Washington, IMF economic counsellor Maurice Obstfeld says the global recovery is continuing and "at a faster pace".

There are a small number of downgrades as well, however, and they are substantial in the case of India, because of the lingering effects of a currency exchange previous year and uncertainty associated with a new tax.

Growth prospects for emerging and developing economies are marked up by 0.1 percentage point for both 2017 and 2018 relative to April, primarily owing to a stronger growth projection for China, the report said.

It warned that policymakers had to think long-term and implement fiscal and structural reforms to ensure that the global recovery would hold.

Inflation is too low in many countries.

The rapid expansion of credit in China increases the risk of sharp slowdown there and the International Monetary Fund says the government needs to intensify its efforts to head off that danger.

"In advanced economies, monetary policy settings should remain accommodative until there are firm signs of inflation returning to targets...(as) still-subdued wage pressures mostly reflect remaining slack, not fully captured by headline unemployment rates", the Fund said.

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