IMF forecast shows Australia's economic dominance: Gillard

The IMF says the world economy should grow 3.5 per cent this year, accelerating to 4.1 per cent in 2013. [Jonathan Ernst: Reuters]
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The IMF says the world economy should grow 3.5 per cent this year, accelerating to 4.1 per cent in 2013. [Jonathan Ernst: Reuters]

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The Australian Prime Minister, Julia Gillard, says Australia's economy is the envy of the world despite a slight downgrade in growth projections.

The International Monetary Fund's forecast for Australia is in line with projections earlier this year predicting economic growth of 3 per cent.

That's 0.5 per cent below the original figure from the same time last year but Ms Gillard is confident about Australia's position as a world economic force.

"Leaders I sit down with would cheerfully chew their right arm off to have the macroeconomic signs we have in this country," she said.

The Opposition leader Tony Abbott maintains it's a downgrade and government spending and borrowing is to blame.

He says that's what's driving interest rates up and the economy down.

Growth forecast


The IMF has raised its forecast for global economic growth, but says prospective gains remain fragile.

In its latest World Economic Outlook, the IMF slightly upgraded its growth forecast for 2012 from 3.25 per cent to 3.5 per cent, accelerating to 4.1 per cent in 2013.

IMF chief economist Olivier Blanchard characterised the past six months as a "roller-coaster" ride for the world economy, defined by the European debt crisis.

He says the debt crisis still remains the biggest threat, along with high oil prices.

"The world economy is in uneasy calm...one has the feeling that at any moment, things could well get very bad again," Mr Blanchard said.

"That pretty much shapes our forecast.

"Our baseline forecast is for low growth in advanced countries, especially in Europe, but with downside risks being extremely present."

The IMF thinks the US economy should expand at 2.1 per cent this year, while in Europe the economy's likely to shrink by 0.3 per cent because of the ongoing debt crisis.

It says improved activity in the United States and better policies to deal with the European economic situation have reduced the threat of a sharp downturn.

Yuan moves


China continues to drive global growth, with the IMF saying its economic growth is expected to remain above 8 per cent.

Jorg Decressin, a senior adviser in the IMF's Research Department, says the key challenge for China remains reshaping its economy, and moves to a more flexible foreign exchange regime will help.

"Additional exchange rate flexibility will be helpful in terms of addressing one key challenge that China faces," he said.

"To rebalance the internal economy from one which is driven very much by investment in exports to one that is driven by consumption, which is also what their 12 to 5 year plan is envisioning."

Reconstruction in Japan and Thailand, following natural disasters, also helped to foster growth in Asia.

But the IMF is also warning rising oil prices could wreak havoc on the economy, particularly if geopolitical tensions over Iran's disputed nuclear program cuts global supply.

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