The IMF has assumed Australia’s unemployment rate to be the second highest in the Asia Pacific region over the next two years as it cut growth forecasts and raised the likelihood of global recession from 20 to 33 per cent.
After consistently over-estimating global growth since 2010, the IMF has downgraded its 2014 forecast to 3.3 per cent from a more optimistic 3.5 per cent in April and predicted a lift to 3.8 per cent next year.
The outlook over the next half decade was also pessimistic, with the IMF forecasting a period of “sustained global economic weakness over a five-year period”.
In relation to Australia, the IMF forecast growth of 2.8 per cent this year followed by growth of 2.9 per cent next year and placed unemployment at above 6 per cent. Unemployment is forecast at 6.2 per cent this year, falling to 6.1 per cent next year.
Official labour force figures to be released tomorrow are thought to show the jobless rate coming in at 6.2 per cent and falling next year to 6.1 per cent. In July, the unemployment rate surged to a 12 year high, jumping from 6 to 6.4 per cent
The IMF’s forecast relegates Australia to the worst performer on the jobs front in the Asia Pacific region after the Philippines which is thought to experience an unemployment rate of 6.9 this year and 6.8 next year.
IMF chief economist Olivier Blanchard labelled global growth “mediocre” and warned the revised growth rates would have a hit on confidence. The IMF advocated a number of reforms to help lift global performance including efforts to shake-up labour markets, counter international tax evasion and increase infrastructure spending.
Yesterday the Reserve Bank of Australia kept interest rates on hold for a 14th consecutive month at 2.5 per cent, but expressed concerns about China’s property market overheating and the failure of the Australian dollar to fall in line with the drop in the price of iron ore.
The IMF also expressed concerns about the outlook in China, cutting the growth outlook from 7.3 per cent to 7.1 per cent. “Risks of a hard landing in China in the medium term owing to excess capacity and the credit overhang remain a concern,” it found.