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In its latest World Economic Outlook, the International Monetary Fund (IMF) has forecast a 3 per cent decline in global economic growth in 2020, following a 2.9 per cent improvement in 2019.
This compares to a contraction of just 0.1 per cent during the global financial crisis.
The IMF attributed its projections to the ongoing coronavirus (COVID-19) crisis, which it said is having a “severe impact” on economic activity.
According to the IMF, like most developed economies, Australia’s real GDP would be significantly impacted by the global crisis.
The fund is projecting a decline of 6.7 per cent this coming year, which follows the 1.8 per cent growth in 2019.
The IMF’s forecasts come as several ratings agencies revise their outlooks for the Australian economy, with S&P Global Ratings recently downgrading the Commonwealth of Australia’s long-term issuer credit rating.
The outlook for Australia’s banking sector has also been downgraded from “stable” to “negative” by both Fitch Ratings and Moody’s Investors Service.
However, according to the IMF, there’s a light at the end of the tunnel, with a V-shaped recovery in global economic growth of 5.8 per cent projected in 2021.
“In a baseline scenario, which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound, the global economy is projected to grow by 5.8 percent in 2021 as economic activity normalizes, helped by policy support,” the IMF noted.
Under this scenario, Australia would not be exempt from the rapid improvement in global economic conditions, with the IMF projecting a 6.1 per cent spike in Australia’s real GDP.
Reflecting on the IMF’s report, Commonwealth Treasurer Josh Frydenberg stressed that the government is well placed to manage the expected slide in economic conditions.
“Australia approaches this crisis from a position of economic strength,” he said.
“The federal budget returned to balance for the first time in 11 years, and Australia’s debt to GDP is about a quarter of what it is in the United States or United Kingdom, and about one-seventh of what it is in Japan.”
Mr Frydenberg claimed that the combined $320 billion in fiscal support from the federal government and the Reserve Bank of Australia would help cushion the blow.
“Our measures are temporary, targeted and proportionate to the challenge we face and will ensure Australia bounces back stronger on the other side, without undermining the structural integrity of the budget while maintaining our commitment to medium-term fiscal sustainability.”
[Related: Big four banks downgraded]
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