Thursday, February 13, 2014

IMF gives Treasurer a tick for hardline budget strategy

The International Monetary Fund has endorsed the Treasurer's anticipated budget cuts but has warned that fiscal buffers are needed to deal with any financial shock.

In its latest economic report card, the IMF said Australia's economy "rests on strong fundamentals" but the near term outlook "remains vulnerable".

The IMF gives Mr Hockey a tick and said it "supported the government's aim to return to a fiscal surplus" while commending Australian authorities "for their sound and prudent macroeconomic management".

The IMF backed the Treasurer's budget strategy and "emphasised the usefulness of early decisions on the spending cut and revenue increases need to reach the fiscal objectives".

However, the IMF appears to be concerned about the rapidly-unwinding investment phase of the resources boom which has been underpinning Australia's economic fortunes.

"A transition phase has now been reached" and "the mining investment boom of the past decade has peaked and the economy is moving to the production and export phase."

The IMF predicts mining related investment will "drop sharply" in the near term and that the recovery of the non-mining sector needs to pick up the slack.

The IMF has also pointed to an "overvalued exchange rate" which is weighing down the non mining economy.

The Australian dollar is currently buying 90.3 US cents in contrast to the Reserve Bank's ambition to lower the currency to around 85 US cents.

With the dollar still strong, the IMF has urged the Reserve Bank to keep the cash rate at its historic low.

The IMF has also pointed to Australian employment and that "labour market conditions have softened" as the jobless rate rises.

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