IMF Executive Board Concludes 2021 Article IV Consultation with Australia
IMF News, December 6, 2021
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- Published: December 6, 2021
Overview and recent developments
- On November 22, 2021, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Australia.
- Australia’s economy has weathered the pandemic comparatively well, supported by sound macroeconomic fundamentals and large-scale fiscal and monetary policy support.
- Economic activity recovered to well above pre-pandemic levels by Q2 2021, but new Delta-variant outbreaks since June 2021 caused a sizable loss in activity in Q3 2021 and disproportionately affected some regions, sectors, and workers.
- Australian banks remained liquid and well-capitalized; household and corporate balance sheets proved resilient.
- Surging house prices raised concerns about affordability and financial vulnerabilities; authorities tightened macroprudential policy.
- Quickly rising vaccination rates offer a pathway to reopening; accommodative fiscal and monetary policies should soften near-term impacts and support post-lockdown recovery.
Outlook and risks
- Growth projections:
- Economic growth expected at 3.5 percent in 2021 and 4.1 percent in 2022.
- Inflation:
- Temporary factors have pushed headline inflation to the top of the Reserve Bank of Australia’s 2-3 percent target range.
- Underlying inflation has remained lower and should gradually rise toward the mid-point of the target range.
- Major upside/downside risks:
- Downside: renewed domestic outbreaks delaying reopening; COVID-19 impacts on Australia’s trading partners; prolonged global supply chain disruptions; tighter global financial conditions; geopolitical tensions; a house price correction; climate-related events.
- Upside: effective containment during reopening that restores sentiment faster, boosting household consumption and business investment.
Executive Board assessment and policy guidance
- General assessment:
- Directors agreed Australia’s sound pre-crisis fundamentals and effective policy response helped cushion the pandemic and support the recovery.
- Directors encouraged accommodative and agile macroeconomic policies in the near term given high uncertainty and downside risks, complemented with structural reforms to boost productivity for a sustainable, inclusive, and green recovery.
- Fiscal policy:
- Directors commended strong fiscal support and noted Australia continues to have substantial fiscal space.
- They supported further stimulus should downside risks materialize and stressed ensuring adequate support to vulnerable workers and businesses, including through active labor market policies.
- Generally encouraged tax reforms to gain efficiency; a few Directors highlighted rebalancing away from direct taxes toward indirect taxes.
- Monetary policy:
- Accommodative monetary policy has been instrumental.
- Monetary policy should remain data-dependent and well communicated, with normalization calibrated to recovery strength and expected inflation.
- If inflationary pressures become more persistent, earlier tightening may be warranted; conversely, additional support can be deployed if downside risks materialize.
- Financial sector and macroprudential policy:
- Directors welcomed reforms to enhance financial sector resilience, including reforms to the bank capital framework and financial market infrastructure.
- Encouraged efforts to address rising financial risks from climate change and cyber-attacks, and to further strengthen the AML/CFT regime.
- Surging house prices and elevated household debt raise concerns; Directors welcomed recent macroprudential measures and emphasized monitoring lending standards and tightening further if risks build.
- Encouraged supply-side reforms to address housing affordability.
- Climate policy:
- Directors welcomed the net zero by 2050 target and increased investment in low-emissions technologies.
- Encouraged fast progress within a comprehensive policy framework; a number of Directors saw merit in a broad-based carbon price, while a few favored technology-based approaches.
- Structural reforms:
- Encouraged reforms to reinvigorate productivity growth: advancing deregulation, supporting digitalization, enhancing innovation and competition.
- Expressed appreciation for continued support for an open trade environment.
Key statistics and projections (selected, as reported)
- Real GDP (annual percent change): 2016: 2.7; 2017: 2.4; 2018: 2.8; 2019: 1.9; 2020: -2.4; 2021: 3.5; 2022: 4.1; 2023: 2.6
- Domestic demand (annual percent change): 2016: 1.8; 2017: 3.0; 2018: 1.2; 2019: -2.6; 2020: 4.5; 2021: 4.7; 2022: 2.9
- Private consumption (annual percent change): 2016: 2.5; 2017: -5.8; 2018: 3.3; 2019: 6.3; 2020: 3.9
- Investment (annual percent change): 2016: 3.6; 2017: 2.2; 2018: -2.5; 2019: -3.0; 2020: 9.4; 2021: 6.6; 2022: 3.1
- Investment (percent of GDP) 1/: 2016: 24.6; 2017: 24.3; 2018: 24.1; 2019: 22.5; 2020: 22.3; 2021: 23.2; 2022: 24.0; 2023: 23.9
- Savings (gross, percent of GDP): 2016: 20.8; 2017: 22.0; 2018: 21.9; 2019: 23.3; 2020: 26.8; 2021: 25.4; 2022: 24.5; 2023: 23.8
- S-I balance (percent of GDP): 2016: 0.6; 2017: 0.2; 2018: 1.3; 2019: 8.3; 2020: 0.8; 2021: -1.6; 2022: -0.6; 2023: -0.9
- Potential output (percent): 2.3 (2016); 1.4 (2017)
- Output gap (percent of potential): -0.4; -4.3; -2.3; 0.0 (years not separately listed)
- Labor market: Employment (2016): 1.7; Unemployment (percent of labor force): 5.6; 6.5; Wages (nominal percent change): 2.1; 1.6; 2.0
- Terms of trade index (goods, avg) and percent changes: index levels shown across years (e.g., 2016: 80; 2017: 92; 2018: 95; 2019: 104; 2020: 103; 2021: 123) and percent changes (2016: 9.1; 2017: 18.7; 2018: -6.3)
- Commodity price indices (selected): Iron ore prices (index): 85; 101; 135; 156; 247; 195. Coal prices (index): 66; 89; 107; 78; 59; 129; 125; 105. LNG prices (index): 83; 112; 62; 50; 145. Crude prices (Brent; index): 69; 99; 96; 93.
- Consumer prices (avg) and Core consumer prices (avg) — levels referenced; GDP deflator (avg) reported (e.g., 0.7; 1.1).
- Financial rates and indicators: Reserve Bank of Australia cash rate (percent, avg); 10-year treasury bond yield (percent, avg); Mortgage lending rate (percent, avg) (mortgage lending rate example value shown: 6.1).
- Macro-financial: Credit to the private sector (percent changes, e.g., 7.0); House price index (eop): 2016: 141; 2017: 148; 2018: 140; 2019: 144; 2020: 149; 2021: 178; 2022: 189; 2023: 197; 2024: 202; 2025: 205; 2026: 208.
- House price-to-income, capital cities (ratio): 4.4; 4.6.
- Interest payments (percent of disposable income): 8.7; 8.8; 6.0; 8.1.
- Household savings (percent of disposable income): 13.8; 9.0; 6.7.
- Household debt (percent of disposable income) 2/: 179; 184; 186; 180; 187; 188; 181; 176; 171.
- Business credit (percent of GDP): 51.5; 50.1; 50.3; 48.9; 50.2; 48.1; 47.8; 47.7; 47.9; 48.0.
- General government (percent of GDP) 3/ — Revenue: 34.8; 34.6; 35.6; 35.7; 34.5; 35.5; 33.7; 33.4; 33.8; 34.0; 34.1. Expenditure: 37.4; 36.8; 36.9; 42.1; 44.5; 41.6; 37.0; 36.6; 36.4.
- Net lending/borrowing (percent of GDP): -2.2; -1.3; -7.6; -9.1; -8.0; -4.0; -3.2.
- Commonwealth only (percent of GDP): -1.7; -4.8; -6.6; -5.0; -2.0.
- Operating balance (percent of GDP): -1.4; -5.4; -6.8; -5.5.
- Cyclically adjusted balance (percent of GDP): -6.9; -8.3; -7.4; -4.1; -2.7.
- Gross debt (percent of GDP): 39.5; 41.0; 41.2; 42.0; 52.7; 59.4; 66.4; 67.2; 67.3; 65.1.
- Net debt (percent of GDP): 22.9; 24.4; 32.1; 34.9; 42.2; 45.0; 44.6; 43.5.
- Net worth (percent of GDP): 46.0; 49.9; 26.7; 27.2; 24.7.
- Balance of payments: Current account (percent of GDP): -3.3; 3.8.
- Export volume (annual percent change): 6.9; -10.1; -1.0; 7.6.
- Import volume (annual percent change): 7.9; -13.4; 6.8.
- Net international investment position (percent of GDP): -57.7; -55.5; -54.2; -47.3; -49.9; -39.4; -36.1; -34.0; -32.5; -31.3; -30.4.
- Gross official reserves (bn A$): 74; 76; 84; 56; …
- Memorandum: Nominal GDP (bn A$): 1,702; 1,807; 1,900; 2,002; 1,969; 2,141; 2,253; 2,357; 2,469; 2,589; 2,716. Population (million): 24.8; 25.2; 25.6; 25.7; 25.8; 26.1; 26.4; 27.1.
- Nominal and real effective exchange rate indices: nominal effective exchange rate: 90.9; 93.6; 90.0; 86.3; 86.0. Real effective exchange rate: 93.7; 89.9; 85.4.
Notes:
- 1/ Includes changes in inventories.
- 2/ Reflects the national accounts measure of household debt, including to the financial sector, state and federal governments and foreign overseas banks and governments. It also includes other accounts payable to these sectors and a range of other smaller entities including pension funds.
- 3/ Fiscal year ending June.
Source: IMF Press Release No. 21/362, "IMF Executive Board Concludes 2021 Article IV Consultation with Australia" (December 6, 2021).
