Further interest rate increases are expected because the Australian economy “evades” a recession next year.

The International Monetary Fund expects Australia to avoid a recession but has revised down its growth expectations for next year.

The United Nations agency expects growth to slow to 1.7 percent in 2023 — less than the 1.9 percent forecast in its World Economic Outlook released last month.

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In its annual health check of Australia’s economy, the IMF pointed to Australia’s resilient domestic buffers against economic headwinds, including adequate household savings.

“Between slowing global growth and some still-resilient domestic buffers, Australia is on a narrow path to a soft landing,” the report said.

But Australia is not out of the woods just yet – a more than expected slowdown in Chinese growth would threaten the country’s exports, and higher domestic inflation and wage growth could lead to further interest rate hikes by the central bank.

“The fall in property prices has the potential to accelerate, which may reduce household consumption with some impact on banks’ balance sheets,” the IMF warned.

The agency urged the Reserve Bank to keep raising interest rates to cool demand and urged the government to keep spending contained and well-targeted.

Treasurer Jim Chalmers said that the IMF had confirmed that the October budget of the Albanese government was “right for time”.

“The government is returning 99 percent of tax hikes over the next two years to the budget when the inflation challenge is greatest, and 92 percent above forecasts,” Chalmers said.

“This is compared to the average of the former government of around 40 percent.”

The international agency also commented on Australia’s tax reform debate – noting that the Stage 3 tax cuts would reduce the personal income tax burden and would double Australia’s best “underutilized” indirect taxes, such as property taxes and goods and services VAT.

The IMF recommended abandoning stamp duty in favor of property taxes to promote housing affordability, labor mobility and a more sustainable tax base.

It hailed Australia’s renewed commitment to climate action, saying more renewable energy on the grid would improve the resilience of the power sector and shield the country from price spikes and energy market volatility.

Small companies suffer

Despite the optimistic assessment, a new report shows that small companies begin to suffer.

CreditorWatch’s Business Risk Index found that small businesses are three times more likely to default on payments than large businesses.

The defaults of payment from companies to companies continue to increase by an average of 20 percent per month.

CreditorWatch chief economist Anneke Thompson said rising trade defaults, falling consumer confidence and rising job vacancies all pointed to a slowing economy.

“Instinctively this seems undesirable, but unfortunately a significant slowdown in the economy is one of the only cures for inflation,” she said.

“The challenge is to ensure small businesses don’t suffer the brunt of the effects of a slowing economy, which unfortunately usually happens.”

Australian economy strong despite rate hikes

Australian economy strong despite rate hikes

The Westpac and Melbourne Institute benchmark index, which combines multiple data points to show future economic activity, has fallen to a fresh post-pandemic low.

The growth rate of the index fell to -1.19 percent in October from -1.09 percent in September.

“As the growth rate continues to decline — albeit at a much slower pace than last month — we continue to have further support from the benchmark index that growth will slow significantly in 2023,” said Bill Evans, Westpac’s chief economist.

The bank’s economists expect growth of 1 percent for 2023, well below the IMF’s forecast and below the RBA’s forecast of 1.4 percent.

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Moment when grandmother accidentally locks baby in car.

https://7news.com.au/business/economy/more-rate-rises-on-the-cards-as-australia-expected-to-dodge-a-recession-next-year-c-9284080 Further interest rate increases are expected because the Australian economy “evades” a recession next year.

James Brien

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