Australia’s future economic growth appears grimmer than previously forecast with the International Monetary Fund’s (IMF) latest numbers on 2019 and 2020 downgrading the predicted 2.1% of growth to 1.7%.
This figure is weaker than the current economic growth experienced by Greece an economy which faced several years of depression.
These numbers follow a worldwide decline in growth, with the global economic growth rate now expected to rise by only 3%, making it the worst performance since the global financial crisis of 2008 and 2009.
Treasurer Josh Frydenberg has admitted Australia is facing challenges but has blamed global economic issues for the country’s struggle.
The Morrison government has attempted to stimulate the economy this year with personal income tax cuts, but some economists have deemed this move futile.
Rather than spending these savings, many Australian consumers have funnelled this money into their mortgages.
Frydenberg has stood by the personal income tax cut, arguing “some people spend the money and some people save the money. There’s no surprise in that.”
“Ultimately, if you are putting the money into paying down your mortgage that’s going to reduce your interest payments and ultimately it’s a timing question as to when the rest of the money flows through to the economy.”
Calls for more government spending
Reserve Bank governor Philip Lowe has repeatedly urged the Federal Government to increase its spending particularly on infrastructure, with the RBA’s cash rate now at a historic low of 0.75%.
The IMF echoed this sentiment and warned slashing interest rates close to zero is not enough to promote economic growth. They too urged greater government spending.
On hearing the new IMF predictions Shadow Treasurer, Jim Chalmers, has asked the government to act soon and bring forward their proposed tax cuts. He also asked the government to look at infrastructure investment or consider increasing Newstart, believing these might stimulate a stunted economy.
Mr Frydenberg said the key priority of the government continues to be returning the budget back to surplus.
“The international challenges are a stark reminder of why we must stick to our economic plan which will deliver lower taxes so Australians can keep more of what they earn, more infrastructure to create jobs and boost productivity.”
The Australian economy is tipped to rise in 2020 to 2.3%, but this still falls 0.5% short of IMF’s April predictions and the federal budget’s trajectory.
More rate cuts ahead
As central banks in the United States and Europe are on track to continue cutting interest rates, Australia looks set to follow the move.
In the recent Reserve Bank meeting the minutes signalled another rate cut for mid2020 to deal with a slowing economy, but other experts have predicted another cut as early as next month.
Words by Michelle Elias