The IMF has downgraded growth forecasts in its World Economic Outlook update released today, citing the European crisis and deteriorating financial conditions as causes of weaker global activity.
The IMF's revised outlook is a warning to all countries that the global economy continues to face serious threats and echoes the downgrades to global growth set out in the Government's Mid-Year Economic and Fiscal Outlook (MYEFO) last November which forecast a recession in Europe.
The IMF's update also serves as a timely reminder that, while Australia is not immune, our region is much healthier and our economic fundamentals are among the strongest in the world.
The IMF expects global GDP to grow 3.3 per cent this year, down markedly from the 4.0 per cent predicted in September. Global GDP growth in 2013 has also been downgraded to 3.9 per cent, down from 4.5 per cent.
Like the MYEFO, the IMF anticipates the euro area will go into recession, with GDP shrinking by 0.5 per cent this year. Italy and Spain are also expected to face painful contractions, slumping 2.2 per cent and 1.7 per cent respectively in 2012.
In contrast to the slowdown in Europe, the IMF forecasts our region will continue to perform strongly and underpin global growth. China and India are still forecast to grow a solid 8.2 per cent and 7.0 per cent respectively in 2012.
While no country can expect to be immune from the global threats identified by the IMF, Australia has solid growth, unemployment at half the levels of Europe, a massive investment pipeline, contained inflation and very low government debt. Australia recently received the coveted AAA credit rating from all three global ratings agencies for the first time in our history, reflecting our rock-solid economic fundamentals at a time when many other economies have suffered ratings downgrades.
Our net debt is projected to peak at 8.9 per cent of GDP in 2011-12 - far lower than all of the major advanced economies - before falling to 7.7 per cent of GDP in 2014-15. This is less than a tenth of the average net debt position of the major advanced economies, which is expected to reach 92.9 per cent of GDP in 2016.
The Government's record of fiscal discipline and proven track record of dealing with global instability remains very important for Australian families across the country, underpinning confidence in our economy at a time of heightened global uncertainty.