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IMF World Economic Outlook: October 2010

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The IMF's World Economic Outlook (WEO) released today confirms that Australia’s economy is in a strong position and continues to outperform other advanced economies, despite increased uncertainty in the global economy.

The IMF notes that while the global economy is proceeding largely as expected, downside risks remain elevated and the recovery remains uneven.

The patchy nature of the world’s economic recovery reinforces how important it was not only for Australia to execute an effective stimulus, but to put in place the building blocks for our own recovery then and there.

The path Australia has charted back to surplus three years early is underpinned by the strict fiscal rules we put in place at the height of the global crisis.

The IMF expects global growth of 4.8 per cent in 2010, slightly higher than its July forecast, and 4.2 per cent in 2011.

The report highlights the two-speed nature of the global economy, with still sluggish growth in many advanced economies set against a much more robust recovery in emerging and developing economies, particularly those in our region.

The IMF is forecasting developing Asia will grow by 9.4 per cent in 2010 and 8.4 per cent in 2011, with continued strong growth for China (10.5 per cent in 2010 and 9.6 per cent in 2011) and India (9.7 per cent in 2010 and 8.4 per cent in 2011).

In contrast, most major advanced economies are struggling with persistently high unemployment, low confidence and weak private demand. Against this backdrop, the IMF expects advanced economies to grow by 2.7 per cent in 2010, before slowing to 2.2 per cent in 2011.

Australia came through the global crisis in a much stronger position than most other advanced economies and continues to lead the pack with strong economic growth and job creation.

Australia avoided recession and private demand is now picking up, led by a strong pipeline of private business investment, which is gearing up as infrastructure stimulus continues to wind down. This is in contrast to many other advanced economies, where private activity is struggling to fill the gap left by fading fiscal stimulus measures.

The IMF forecasts Australia’s economy will grow by 3 per cent in 2010 and 3.5 per cent 2011 - a much stronger growth outlook than that of the advanced economies as a whole.

While the IMF expects unemployment across advanced economies to remain high, at over 8 per cent for the next two years, Australia’s unemployment rate has already fallen to 5.1 per cent.

The IMF has again reinforced the importance of credible medium term fiscal consolidation strategies and broader reforms to strengthen the global financial system and rebalance growth.

Australia has already put in place strict fiscal rules that are driving the fastest fiscal consolidation since at least the 1960s - delivering a 4½ per cent of GDP tightening in the fiscal policy stance over the next three years, and almost 1½ per cent of GDP in 2010-11 alone.

Our strict fiscal discipline means we’re on track to return the budget to surplus in 2012-13, well ahead of any major advanced economy, and will see net debt peak at dramatically lower levels than our peers.

The Government has a comprehensive reform agenda to build on our strengths and broaden our economy, including cutting business taxation, boosting national savings, and investment in critical economic infrastructure like the National Broadband Network.

7 October 2010


Contact: Adam Collins 0408 529 633