The International Monetary Fund (IMF) has warned that Australia’s economy will grow at a sluggish pace for the next three years, as the country struggles to recover from the impact of the COVID-19 pandemic and the trade tensions with China.
COVID-19 and lockdowns weigh on growth
According to the IMF’s latest World Economic Outlook report, Australia’s gross domestic product (GDP) will grow by 3.5% in 2023, down from the previous forecast of 4.5%. This is lower than the global average of 4.9% and the advanced economies’ average of 4.7%.
The IMF said that the downward revision reflects the prolonged lockdowns in several states and territories, which have disrupted economic activity and consumer confidence. The report also noted that the slow vaccination rollout and the emergence of new variants have increased the uncertainty and risks for the recovery.
The IMF praised the Australian government’s fiscal and monetary support measures, which have helped cushion the blow from the pandemic. However, it urged the authorities to maintain a flexible and targeted approach, and to avoid withdrawing stimulus too soon.
Trade tensions with China pose a challenge
The IMF also highlighted the ongoing trade dispute between Australia and China, which has affected several sectors such as agriculture, mining, education, and tourism. The report said that the trade tensions have reduced Australia’s export earnings and potential growth, and have increased its vulnerability to external shocks.
The IMF suggested that Australia should diversify its export markets and sources of foreign investment, and seek to resolve the trade issues with China through dialogue and cooperation. It also recommended that Australia should pursue multilateral trade agreements and regional integration initiatives, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP).
Structural reforms are needed to boost productivity
The IMF stressed that Australia needs to implement structural reforms to enhance its productivity and competitiveness in the post-pandemic era. The report identified several areas where reforms are needed, such as:
- Improving the efficiency and resilience of the health care system, especially in terms of digitalization, coordination, and prevention.
- Enhancing the quality and inclusiveness of education and training, especially for low-skilled workers, women, youth, and indigenous people.
- Increasing public investment in infrastructure, innovation, and green technologies, while ensuring environmental sustainability and social equity.
- Simplifying the tax system and reducing distortions, such as by broadening the base and lowering the rate of the goods and services tax (GST), and by phasing out inefficient taxes such as stamp duties.
- Reforming the industrial relations system and increasing labour market flexibility, while protecting workers’ rights and welfare.
The IMF said that these reforms would help Australia achieve higher and more inclusive growth in the medium term, and would also support its transition to a low-carbon economy.