IMF issues dire warning for Australian economy
The International Monetary Fund is urging the Reserve Bank to look through the energy price shock and warns the government against wasteful stimulus measures.
Source: Reserve Bank of Australia
Australia has been warned against cost-of-living handouts amid a stark projection that it could have one of the highest inflation rates in the developed world.
The International Monetary Fund issued a dire forecast scenario late on Tuesday AEST that the Middle East conflict was threatening a global recession.
The global lender of last resort said the world economy faced more pain without a speedy resolution to the conflict.
The IMF revised Australia’s inflation outlook significantly higher, with consumer price growth of 4 per cent in 2026 exceeding most advanced economies, including the US, Britain and New Zealand.
It also revised its economic growth projections for Australia slightly down from January.
The national GDP growth rate is expected to come in at 2 per cent in 2026, down from 2.1 per cent, and 1.7 for 2027, from 2.2 per cent.
You might like
But governments were warned against trying to ease cost pressures for households and businesses by dishing out wasteful and untargeted fiscal measures such as energy caps or subsidies.
“While such measures are popular, evidence suggests they are often both poorly designed and very costly for the public purse,” IMF chief economist Pierre-Olivier Gourinchas said.
“Moreover, avoiding fiscal stimulus at a time of rising inflation is another critical component so as not to complicate the task of central banks.”
Economists have warned the Albanese government’s cuts to the fuel excise will keep inflation higher for longer and will diminish price signals encouraging Australians to preserve fuel by driving less, catching public transport or riding a bike, for example.
Treasurer Jim Chalmers will head to Washington DC on Wednesday to discuss the economic maelstrom with international counterparts, including British chancellor Rachel Reeves and Chinese Finance Minister Lan Foan, at the IMF-World Bank spring meetings.
The report showed it was “a dangerous moment for the global economy”, Chalmers said.
Stay informed, daily
“We’re weighing all of this extreme uncertainty as we prepare a budget focused on resilience and reform,” he said.
The IMF had been preparing to revise its growth forecasts upwards before the war.
But Gourinchas said the closure of the Strait of Hormuz and attacks on oil and gas facilities halted the positive momentum and raised the prospect of a major energy crisis should hostilities continue.
Under a severe scenario, in which an extended conflict results in more damage to energy infrastructure, global growth would fall to 2 per cent in 2026 and perilously close to a global recession.
“What should we avoid?” Gourinchas said.
Peace talks may resume
US President Donald Trump says Iran talks could resume in Pakistan over the next two days, according to an interview with the New York Post.
The initial round of talks ended last weekend without an agreement on Iran’s nuclear ambitions, which the White House said was a central sticking point.
The subsequent US blockade of Iranian ports involved more than 10,000 military personnel, more than a dozen warships and dozens of aircraft, US Central Command said on Tuesday.
“During the first 24 hours, no ships made it past the US blockade and six merchant vessels complied with direction from US forces to turn around to re-enter an Iranian port on the Gulf of Oman,” the command said, a day after the blockade announced by Trump took effect.
“The blockade is being enforced impartially against vessels of all nations entering or departing Iranian ports and coastal areas, including all Iranian ports on the Arabian Gulf and Gulf of Oman,” it said.
“US forces are supporting freedom of navigation for vessels transiting the Strait of Hormuz to and from non-Iranian ports.”
-with AAP
Want to see more stories from InDaily SA in your Google search results?
- Click here to set InDaily SA as a preferred source.
- Tick the box next to "InDaily SA". That's it.
