IMF warns of even slower economic growth

A NEW study has warned that the economic slowdown suffered by Australia since the end of the mining boom may have further to run.

A NEW study has warned that the economic slowdown suffered by Australia since the end of the mining boom may have further to run.

The International Monetary Fund says the weak commodity price outlook could subtract one percentage point annually from economic growth in commodity exporting countries such as Australia over 2015 to 2017, compared with the preceding three years.

In energy exporting countries, the drag is estimated to be even greater — 2.25 percentage points on average over the same period — reflecting a sharp downturn in oil prices over the past year. The IMF urges in its World Economic Outlook, which will soon be released, policy makers be realistic about their economic growth potential.

“Investment, and accordingly, potential output, tend to grow more slowly in exporters during commodity price downswings,” deputy division chief in the IMF’s research department and lead author of the report, Oya Celasun, says.

Releasing the report in Washington on Monday, she said these countries must tackle structural reforms such as removing infrastructure bottlenecks, improving the business climate and enhancing the quality of education.

Annual Australian economic growth slowed to just two per cent as of June, which is well below its long-term average of 3.25 per cent.

Other commodity-based countries such as Canada and Brazil are already in recession.

Economists at the ANZ Bank said last week the Reserve Bank may need to cut the cash rate again because they expect continued softness in the economy at the start of next year and the risk of an even higher unemployment rate.

They forecast cuts of 25 basis points in both February and May, which would take the cash rate to a record low of just 1.5 per cent.