The International Monetary Fund (IMF) commended Australia on its large-scale fiscal and monetary policy, which lifted the economy out of its first recession in three decades.
In a post consultation press release, the IMF pointed to a few concerns but assured that inflation was spruiked by “temporary factors”, which are expected to stabilise.
It did, however, ask the Reserve Bank to ensure monetary policy remains “data-dependent” and “well communicated”, with policy normalisation calibrated to the strength of the recovery and expected inflation.
“If inflationary pressures become more persistent, an earlier tightening may be warranted, while, conversely, additional support can be deployed in case downside risks materialise.”
The IMF is, however, most concerned with “surging” house prices and has subsequent queries around affordability and financial vulnerabilities.
In fact, the organisation emphasised the need to “closely monitor” lending standards and tighten macroprudential policy further if risks continue to build, while also encouraging the authorities to implement “supply-side reforms” to help alleviate the issue.
While commending the government on its commitment to “continued reforms for enhancing financial sector resilience”, the IMF did note more could be done, including the need for further efforts in addressing rising financial risks from climate change and cyber attacks.
Touching on Australia’s recent net zero by 2050 commitment, the IMF said it sees merit in a broad-based carbon price as an efficient policy option.
Also among the IMF’s key recommendations was a push for increased effort on advancing the deregulation agenda, supporting digitalisation, enhancing innovation and competition to reinvigorate productivity growth and support an inclusive recovery.
Welcoming the IMF’s latest assessment of the Australian economy, Treasurer Josh Frydenberg noted that recent reforms to enhance the R&D tax incentive, along with the introduction of a patent box, are expected to further encourage domestic commercialisation of innovation.
“The Morrison government will also continue to invest in the energy transition through the Technology Investment Roadmap to accelerate the uptake of low emissions technologies and a digital economy strategy to harness the opportunities that arise from the pandemic,” the Treasurer said.
“A modern digital economy will help create more jobs, make Australia more competitive and improve productivity,” he added.
The IMF expects Australia’s GDP to settle at a yearly 2.6 per cent growth from 2023 onwards.
