Australia's Economic Outlook in Six Charts

IMF News, February 21, 2019

Source details

Economic growth in Australia picked up strongly in the first half of 2018.
The economy continued adjustment and rebalancing after the end of the mining investment and commodity price boom.
Despite strong employment growth and declining unemployment rates, wage growth was low and underemployment still above its longer-term average.
Inflation remained below the central bank’s 2 to 3 percent target range in the absence of wage or other cost pressure.
After a recent housing boom, a housing market correction is now underway.

Economic growth is expected to moderate in the near term but remain close to trend.
A rebound in non-mining business investment and public infrastructure spending are projected to offset the expected contraction in dwelling investment.
The forecasts incorporate a soft landing in the housing market, but a stronger market correction remains a risk.
Under an orderly correction, house price overvaluation and average household debt both decline over time.

Economic and financial vulnerabilities relating to high household debt and low housing affordability have become major concerns after Australia’s recent housing boom.
Household debt is expected to remain elevated in international comparison over the next few years, at 165 percent of disposable income or higher.
Related vulnerabilities include still-stretched real estate valuations.
Housing supply reforms will remain critical to restoring housing affordability; the housing market correction alone is unlikely to be sufficient for inclusive, broad-based affordability and growth.
Demand for housing is expected to remain strong, given a robust outlook for economic growth and high population growth in urban areas.
Planning, zoning, and other supply-side reforms affect supply and prices with long lags; such reforms should not be delayed because of the housing market correction.

Financial system resilience strengthened since the IMF’s 2012 assessment through measures including:
- raising capital requirements of banks,
- reducing reliance on less stable sources of funding from global markets,
- introducing macroprudential measures to calm rapid growth in riskier segments of the mortgage market,
- enhancing quality and effectiveness of financial supervision and systemic risk oversight.
Tests conducted by the IMF’s 2018 financial sector assessment suggest that banks remain relatively resilient under conditions of economic and financial stress.
Continued vulnerabilities identified by the assessment include:
- high household debt,
- still-stretched real estate valuations,
- banks’ ongoing dependence on funding from global markets.
The assessment recommended further steps to bolster financial supervision and to reinforce financial crisis management arrangements.

Maintain supportive macroeconomic policies to secure stronger demand momentum.
Hold the course on macroprudential policies to reduce macro-financial risks.
Complement the current infrastructure boost with:
- broad tax reform,
- sustained promotion of innovation and competition,
- energy policy reform to reduce policy uncertainty and catalyze investment.
Broader tax reform should focus on using more efficient taxes with stable bases, such as the GST and land taxes, while reducing overly generous tax concessions.
Scope exists to further expand infrastructure spending to stimulate productivity given Australia’s notable infrastructure gap compared to other advanced economies.
Australia’s continued commitment to openness and trade will support longer-term growth.

IMF News: "Australia's Economic Outlook in Six Charts", February 21, 2019.