Australia plans to avoid worst of recession as IMF warns of global recession | Australian economy

The federal budget will benefit from an increase in revenue due to “cyclical serendipism”, but “storm clouds” are gathering, as the International Monetary Fund warns that a third of the economy world could contract this year or next.

Deloitte Access Economics forecasts the budget cash shortfall will widen to $60.7 billion for 2022-23, from $32 billion last year. However, $114.4 billion in additional revenue over the next four years compared to the Coalition’s final budget forecast last March will see this deficit shrink each year to $35.7 billion by 2025-2026.

Deloitte’s forecast is based on new economic forecasts and policy announcements from the Albanian government before and after it took office in May. The consultancy expects Australia to avoid a recession even as GDP growth slows and inflation rises.

“Australia is in a bit of a strange position,” Stephen Smith, economics partner at Deloitte, told Guardian Australia. “We are both the envy of the world and not in a particularly good position at the same time.”

The budget net result improved largely due to soaring commodity prices and a low unemployment rate of around 3.5%. Inflation peaking at 7.3% for the year to December and rising wages will also support revenues more than expected.

“It didn’t take any hard work from the governments of either major party,” Deloitte’s budget watchdog report said. “Indeed, the revenue surge that landed in the lap of the federal budget is entirely the result of cyclical serendipity – a clear example of passive fiscal repair.”

Even though commodity prices had begun to decline from record highs, they are expected to continue raising corporate taxes over the next four years. In total, companies would pay $80.6 billion more than expected in March, Smith said.

Individuals would earn about $17 billion more than projected, while the GST would increase by $4.1 billion and additional excise duties would add $5.3 billion to income over those four years, a- he declared.

The extra income would “overwhelm” higher spending on wages and high benefit payments that were indexed to inflation or wages, Smith said. Based on commitments made so far, federal spending would be $68.9 billion higher over four years than the government forecast in March.

Budget projections assume stage three tax cuts will remain unchanged even though there have been signs lately that Prime Minister Anthony Albanese and Treasurer Jim Chalmers ‘could begin to waver on a commitment electoral clear,” the report said. The expected impact of the $243 billion in income tax cuts over nine years “may now be underestimated given the expected pace of wage gains, especially in the near term.”

“It’s going to be a relatively boring budget,” Smith said. “This is the budget the government needs to pass [before] making plans for bigger changes.

Some of these changes could be imposed on Australia. The IMF warned in its latest World Economic Outlook that “as the storm clouds gather, policymakers must keep a steady hand”.

The IMF left its global growth forecast for 2022 unchanged from its July forecast at 3.2%, but cut its estimate for 2023 by 0.2 percentage points to 2.7% growth.

“More than a third of the global economy will contract this year or next, while the three largest economies – the United States, the European Union and China – will continue to stagnate,” the report said. of the IMF. “In short, the worst is yet to come, and for many people, 2023 will look like a recession.”

“The IMF warned today that the global economy is heading into turbulent and uncertain waters – with many economies at risk of sliding into recession, risks of further shocks to energy and food prices and a debt overhang hitting emerging markets,” Chalmers said.

“Clearly there is no easy path forward – which is why the October budget will build resilience by delivering responsible cost-of-living relief, investing in our people and our economy, and by starting the difficult projects of budgetary repair.”

The IMF said mounting price pressures remained “the most immediate threat to current and future prosperity by compressing real incomes and undermining macroeconomic stability”, and urged central banks to remain firm in their efforts to contain inflation.

He predicted Australia’s GDP would grow 3.8% in 2022 and slow further to 1.9% next year. Inflation should end the year at 6.5% before falling back to 4.8% next year. The unemployment rate – already near five-decade lows of 3.5% – would rise only modestly to 3.6% by the end of the year and 3.7% in 2023.

“These challenges do not imply that a significant slowdown is inevitable,” the IMF said. “In many countries, including the US, UK and the Eurozone, labor markets remain tight, with historically low unemployment rates and high levels of job vacancies.”

Comments are closed.