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IMF World Economic Outlook: January Update

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Despite deep-seated challenges and ongoing risks facing many advanced economies, the IMF has painted a picture of cautious optimism for the global recovery in 2013.

In its latest World Economic Outlook update, the IMF predicts a ‘gradual upturn’ in global economic activity this year, although it expects the recovery to be slower than previously expected.

While the IMF has downgraded its global growth forecasts since the October update, reflecting its expectation that conditions in the euro area will weaken further in 2013, it sees a potentially better year for the global economy in 2013 if the right policy action is taken.

The IMF forecasts global GDP to grow 3.5 per cent this year, down from the 3.6 per cent predicted in October 2012, with forecasts for growth in 2014 remaining essentially unchanged at 4.1 per cent.

While risks to the global economic outlook remain, the IMF sees these as increasingly more balanced.

The IMF says that ‘if crisis risks do not materialize and financial conditions continue to improve, global growth could be stronger than projected'.

The IMF anticipates that the United States’ economy will expand by 2.0 per cent this year, provided their fiscal consolidation occurs gradually and the US avoids potentially significant damage from negotiations around the debt ceiling.

The IMF forecasts GDP in the euro area to contract by 0.2 per cent this year, before growing by 1.0 per cent in 2014 — on the basis that necessary reforms are progressed.

Our region continues to underpin global growth with China and India forecast to grow 8.2 per cent and 5.9 per cent respectively in 2013.

The Fund cites renewed setbacks in the euro area and excessive near-term fiscal consolidation in the US as the two biggest risks to the global recovery, and reinforces the urgent need for policy makers to address these risks.

However it also highlights some encouraging recent signs in the global economy, including policy actions to reduce acute crisis risks in Europe and the US, signs of stabilisation in China and greater determination by Japanese policy makers to kick-start growth.

The IMF’s update to its global economic outlook underscores the remarkable resilience of the Australian economy throughout this acute and prolonged global economic volatility - from which obviously we are not immune as we can see from the significant hit to budget revenues.

Australia has already recorded 21 consecutive years of growth, has an unemployment rate less than half that of the euro area, contained inflation, strong public finances and very low government debt - unmatched by any other developed economy.

While patchy conditions persist in some sectors, Australia's economic fundamentals put our country in a strong position to weather ongoing global uncertainty and maximise the opportunities ahead in the Asian Century.


24 January 2013

Contact: Adam Collins 0408 529 633