The International Monetary Fund has warned that interest rates may have to be cut again if the anticipated rebound in Australian economic growth disappoints.
In its annual assessment of Australia, the Washington-based institute expects the economy to grow from 2.5 per cent this year to 3.0 per cent in 2016.
Declining investment in mining and a sharp fall in the terms of trade are posing challenges after a strong performance over the past two decades, it says.
“Continued efforts to support aggregate demand and raise productivity will be critical in transitions to a broader-based and high-growth path,” the IMF said.
It said monetary policy was “appropriately accommodative”, but could be eased further if the rebound disappointed, “provided financial risks remain contained”.
Noting that the federal government was predicting a budget surplus in 2019/20, the IMF agreed that a small surplus should remain a longer-term “anchor of fiscal policy”, striking a balance between supporting near-term activity and addressing longer-term spending commitments.
Prime Minister Malcolm Turnbull said Australia was undoubtedly a winner from China’s demand for iron ore, but the end of the mining boom had been entirely predictable.
“The good news is because of the economic reforms of years past, because of the floating dollar, because of an independent Reserve Bank, what we’ve seen is a very big adjustment to this change in our terms of trade,” he told ABC radio.
Mr Turnbull is hosting a meeting of business, union and community leaders on Thursday as a follow-up to a privately sponsored reform gathering in August.
Tax reform is likely to be a central focus of the meeting.
Commentating on the IMF report, Treasurer Scott Morrison said the global institution recognised that changes to the tax system must promote economic growth and improve competitiveness.
“Our focus on tax must centre on economic growth and ensuring Australians can work, save and invest for their futures,” he said in a statement.
Acting opposition leader Tanya Plibersek believes the IMF report suggests the economy is struggling with the transition from the mining boom.
“This is basically what we have been saying for the last couple of years, that Australia needs a plan for the future,” she told reporters in Sydney.
There was a need to invest in people and good quality infrastructure to boost confidence and to keep the economy ticking over.
Instead, the Liberals’ only plan for micro-economic reform was to cut wages of people who were giving up their Sundays to work and giving tax cuts to high-income earners, Ms Plibersek said.