Yahoo Finance ‘Absolutely no surprise’: Leading economist brushes off economic growth downgrade
Australia’s expected economic growth this year has been downgraded to 1.7 per cent from 2.1 per cent by the International Monetary Fund, but leading economist Stephen Koukoulas isn’t surprised, nor worried.
“It’s absolutely no surprise at all,” he told Yahoo Finance.
“I think the report has really only just caught up with what we saw in the June quarter GDP results, which came out five or six weeks ago now.”
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“That showed the economy growing at around 1.4 per cent in annual terms, so the IMF is really reflecting that.”
Koukoulas said the bond market and the Aussie dollar didn’t change at all in reaction to IMF report, adding, “in a sense, it’s nothing new”.
Rather than focusing on the 2019 figures, the 2020 figures are more important Koukoulas said,
The IMF predicted Australia’s economy would grow 2.3 per cent in 2020 - down from a predicted 2.7 per cent growth in the April forecasts.
“This is sort of a glass-half-full approach to forecasting GDP growth - it’s [2.3 per cent] clearly not strong, it’s not good enough to make inroads into unemployment, but nor is it catastrophic.”
“The economy is not disastrous, and I think that’s the main thing.”
We’re not headed for a recession
Koukoulas said the IMF was forecasting a pick up, and not an economic crisis in Australia next year.
“I think the IMF reports reflect the gentle upturn in the economy, when we look at things like infrastructure, spending, mining, export volumes - they’re all doing really well, and that’s why we’re not going to have a recession.”
Koukoulas said Australia’s GDP would become strong again.
“Not very strong, but the capital, the mining, the infrastructure, the exports...Not great, but not catastrophic.”
Australian economy still facing headwinds
Responding to IMF’s downgraded forecasts, Treasurer Josh Frydenberg said “we do face headwinds”.
"The international challenges are a stark reminder of why we must stick to our economic plan, which will deliver lower taxes so Australians can keep more of what they earn,” he said.
And Koukoulas agreed.
“One [challenge] is the weak wages crisis. The globalisation of labour markets, the gig economy, technology taking jobs of humans - these are the sorts of things keeping downward pressure on wages growth.”
“Previously, it was the fall in house prices, but that appears to be turning now.”
Globally, Koukoulas says the trade war is also a major headwind for Australia.
But we will need another rate cut
We will need some more interest rate cuts to stimulate consumer spending, Koukoulas said.
“The RBA addressed this in their minutes yesterday - we might actually get a little bit of movement out of Canberra,” he said.
We’ve had three rate cuts this year, and there will be more to come in November or December, Koukoulas said.
We could also see the budget surplus reduced slightly and some fiscal policy stimulus by the end of the year, Koukoulas said.
“That seems to be increasing in probability.”
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