An International Monetary Fund (IMF) economist says the world is “on the brink of a global recession”, with Treasurer Jim Chalmers warning that Australia is in dire financial straits and “less resilient” than before.
In releasing its July 2022 economic outlook on Tuesday, IMF economic adviser and research director Pierre-Olivier Gourinchas admitted that global forecasts had “deteriorated significantly since April”.
Measuring growth, global gross domestic product (GDP) was forecast to slow to 3.2 percent in 2022 from 6.1 percent in 2021. This was also 0.4 percent lower than forecast in the April report.
“The world may soon be on the brink of a global recession, just two years after the last one,” Gourinchas said.
The bleak prediction was influenced by a combination of factors, the report said. Chief among these was higher-than-expected inflation in the US, China and key European countries, occurring in a global economy “already weakened by the pandemic”.
In less stable and developing economies, Mr Gourinchas said the “destabilizing inflation” had been “historically unprecedented”.
Downside risks from the war in Ukraine and geopolitical tensions out of Russia continued to put pressure on food insecurity, social unrest and fears that international tensions could lead to a sudden halt in gas imports.
How will this affect Australia?
Although the IMF’s predictions were bleak, the impact on Australia is likely to be significant, said Federal Treasurer Dr. Chalmers.
The IMF, referenced under “Other advanced economies,” predicted that Australia’s GDP growth forecast would project growth of 2.9 percent in 2022 and 2.7 percent in 2023. This was a decrease from our 2021 figures, in which our GDP had increased by 4.4 percent between December 2020 and December 2021, reports the Australian Bureau of Statistics.
Speaking of Australian Financial Report Before delivering his economic statement to Parliament on Thursday, Dr. Chalmers predicted that domestic tax problems would persist.
“This confirms that the challenges facing the global economy are significant, they are growing, they will be with us for some time and they are affecting us here at home,” said Dr. Chalmers.
He also took a swipe at the former Liberal government for mishandling the economy during its nine-year tenure.
“After nine years of missed opportunities and misplaced priorities, we have inherited an economy that is less resilient to these shocks, but we are determined to reverse that and build a better future,” he added.
The speech by Dr. Chalmers before Parliament coincides with the official ABS Consumer Price Index (CPI) update scheduled for Wednesday 27th July. The CPI currently stands at 5.1 percent and rose 2.1 percent between December 2021 and March 2022, up 5.1 percent year-on-year.
Corresponding The Australianthat figure is expected to hit 6.2 percent for the June quarter, reflecting the fastest CPI rise in three decades.
That is, of course, well above the Reserve Bank of Australia’s (RBA) inflation target of 2 to 3 percent.
RBA Governor Philip Lowe gave an update in May, saying it will likely take “a couple of years” for inflation to get back into range.
“Taming inflation should be a top priority”
As rising gasoline and food prices continue to squeeze households and fuel the cost-of-living crisis, the IMF’s July 2022 update says controlling inflation should be a top priority for governments and policymakers.
This comes as the RBA forecasts inflation could hit 7 percent by the end of 2022.
“Tighter monetary policy will inevitably have real economic costs, but delay will only exacerbate them,” the report said.
These include measures such as raising interest rates, reducing the money supply (printing less money), and other measures that would reduce the demand for money.
“Policies to address specific impacts on energy and food prices should focus on those most affected without distorting prices,” they said.
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