Australia in good shape if another crisis hits, says IMF
Michelle Grattan and Gareth Hutchens
August 7, 2011
AUSTRALIA could lower interest rates and create a second budget stimulus package if there is another global economic collapse, the International Monetary Fund says in a report that also gives the government a tick for its carbon price policy and urges more tax reform.
The report says Australia is one of the few global economies in good health as investors brace themselves for further shocks after the weekend's historic downgrade of America's credit rating to AA-plus from AAA by Standard & Poor's.
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Treasurer Wayne Swan said yesterday that while Australia was not immune from events overseas, the IMF's assessment confirmed ''our nation's outlook remains strong despite renewed fragility in the global economy''.
Mr Swan's comments come as China issued a stinging rebuke of the US over its debt crisis, calling for independent supervision of its currency and demanding the country ''learn to live within its means''.
China holds $US1.15 trillion ($A1.09 trillion) in US government bonds and said the US risked further credit rating cuts if it did not pare its ''gigantic military expenditure and bloated social welfare costs''.
''International supervision and a new, stable and secured global reserve currency may also be an option to avert a catastrophe,'' the official Chinese news agency, Xinhua, said.
Europe's central bank governors were due to hold emergency talks overnight intended to prevent Spain and Italy from becoming the next victims of a sovereign debt crisis and limit the fallout from the first US credit-rating cut in history.
Local traders - still reeling from Friday's $60 billion sharemarket rout - fear a negative reaction to the US debt downgrade could drive share prices even lower.
However, economists say there is little danger of Australia losing its AAA-credit rating and, given its safe-haven status, it may even benefit from the global economic turmoil at the expense of the US. Australia is one of only 14 major countries with a AAA-rating.
''I actually think there's a chance the Australian market could be up a bit,'' said Saul Eslake, chief economist of the Grattan Institute. ''I would be surprised if Australian markets took the lead by saying the downgrading of the US's credit rating by one agency is, of its own, sufficient reason to sell Australian shares.''
The IMF says that ''if global financial markets become severely disrupted or world growth falters, [Australia's] macro-economic policy is well positioned to respond''.
There is scope to cut the official interest rate and increase bank liquidity, similar steps to those Australia took at the height of the global financial crisis, the IMF says.
It projects Australia's real GDP growth will be 2 per cent this calendar year and 3.5 per cent next year, with employment growth slowing but unemployment staying under 5 per cent.
The Reserve Bank last week revised its growth forecast down to 2 per cent for 2011, but its 2012 forecast slightly up to 4.5 per cent.
The upside risk to the economy is that larger-than-expected resource investment adds to inflationary pressures, the IMF says. On the downside, global recovery could stall or Asian growth falter.
If recovery remains on track, the IMF says, an interest rate rise is likely to contain the inflationary pressures from the mining boom.
The IMF praised the government for a commitment to returning the budget to surplus in 2012-13, and recommended a budget surplus target of more than 1 per cent of GDP, on average, for the period beyond 2013-14, ''while the mining boom continues to support growth''.
''Although Australia's public debt is relatively low, larger fiscal buffers would give greater
scope to spend during a downturn to support income and jobs.''
The IMF welcomes the carbon price, health and taxation reform, while urging more in this last area.
Mr Swan said the IMF's assessments were ''a timely reminder of Australia's strong fundamentals given the recent heightened concerns about the global economic outlook.
'' We should never forget our economic credentials are among the strongest in the world.
''I'm not going to sugar-coat the fact that the global economic outlook remains uncertain and this uncertainty is likely to continue for some time. And of course there are soft spots in the Australian economy as well. The higher dollar and a cautious consumer are making things tough for retailers, the tourism sector and manufacturers,'' Mr Swan said.
He stressed: ''Now is not the time to shirk the reforms that will continue to keep our economy strong.''
Rio Tinto head Tom Albanese said it was especially important for Australia to do a better job of controlling costs to stay competitive - one way was to introduce the price on carbon only gradually.
''Some of the uncertainty in the financial markets that we've been seeing over the past two weeks only reinforces the point: this is not the time to experiment with an economy.''
Read more: http://www.watoday.com.au/national/...ts-says-imf-20110807-1ihre.html#ixzz1UOvuZFtV
Michelle Grattan and Gareth Hutchens
August 7, 2011
AUSTRALIA could lower interest rates and create a second budget stimulus package if there is another global economic collapse, the International Monetary Fund says in a report that also gives the government a tick for its carbon price policy and urges more tax reform.
The report says Australia is one of the few global economies in good health as investors brace themselves for further shocks after the weekend's historic downgrade of America's credit rating to AA-plus from AAA by Standard & Poor's.
Advertisement: Story continues below
Treasurer Wayne Swan said yesterday that while Australia was not immune from events overseas, the IMF's assessment confirmed ''our nation's outlook remains strong despite renewed fragility in the global economy''.
Mr Swan's comments come as China issued a stinging rebuke of the US over its debt crisis, calling for independent supervision of its currency and demanding the country ''learn to live within its means''.
China holds $US1.15 trillion ($A1.09 trillion) in US government bonds and said the US risked further credit rating cuts if it did not pare its ''gigantic military expenditure and bloated social welfare costs''.
''International supervision and a new, stable and secured global reserve currency may also be an option to avert a catastrophe,'' the official Chinese news agency, Xinhua, said.
Europe's central bank governors were due to hold emergency talks overnight intended to prevent Spain and Italy from becoming the next victims of a sovereign debt crisis and limit the fallout from the first US credit-rating cut in history.
Local traders - still reeling from Friday's $60 billion sharemarket rout - fear a negative reaction to the US debt downgrade could drive share prices even lower.
However, economists say there is little danger of Australia losing its AAA-credit rating and, given its safe-haven status, it may even benefit from the global economic turmoil at the expense of the US. Australia is one of only 14 major countries with a AAA-rating.
''I actually think there's a chance the Australian market could be up a bit,'' said Saul Eslake, chief economist of the Grattan Institute. ''I would be surprised if Australian markets took the lead by saying the downgrading of the US's credit rating by one agency is, of its own, sufficient reason to sell Australian shares.''
The IMF says that ''if global financial markets become severely disrupted or world growth falters, [Australia's] macro-economic policy is well positioned to respond''.
There is scope to cut the official interest rate and increase bank liquidity, similar steps to those Australia took at the height of the global financial crisis, the IMF says.
It projects Australia's real GDP growth will be 2 per cent this calendar year and 3.5 per cent next year, with employment growth slowing but unemployment staying under 5 per cent.
The Reserve Bank last week revised its growth forecast down to 2 per cent for 2011, but its 2012 forecast slightly up to 4.5 per cent.
The upside risk to the economy is that larger-than-expected resource investment adds to inflationary pressures, the IMF says. On the downside, global recovery could stall or Asian growth falter.
If recovery remains on track, the IMF says, an interest rate rise is likely to contain the inflationary pressures from the mining boom.
The IMF praised the government for a commitment to returning the budget to surplus in 2012-13, and recommended a budget surplus target of more than 1 per cent of GDP, on average, for the period beyond 2013-14, ''while the mining boom continues to support growth''.
''Although Australia's public debt is relatively low, larger fiscal buffers would give greater
scope to spend during a downturn to support income and jobs.''
The IMF welcomes the carbon price, health and taxation reform, while urging more in this last area.
Mr Swan said the IMF's assessments were ''a timely reminder of Australia's strong fundamentals given the recent heightened concerns about the global economic outlook.
'' We should never forget our economic credentials are among the strongest in the world.
''I'm not going to sugar-coat the fact that the global economic outlook remains uncertain and this uncertainty is likely to continue for some time. And of course there are soft spots in the Australian economy as well. The higher dollar and a cautious consumer are making things tough for retailers, the tourism sector and manufacturers,'' Mr Swan said.
He stressed: ''Now is not the time to shirk the reforms that will continue to keep our economy strong.''
Rio Tinto head Tom Albanese said it was especially important for Australia to do a better job of controlling costs to stay competitive - one way was to introduce the price on carbon only gradually.
''Some of the uncertainty in the financial markets that we've been seeing over the past two weeks only reinforces the point: this is not the time to experiment with an economy.''
Read more: http://www.watoday.com.au/national/...ts-says-imf-20110807-1ihre.html#ixzz1UOvuZFtV
