Commodity boom shields Australia from global slowdown & More News Here – Upjobsnews

“That does affect the majority of countries,” Mr Finger told The Australian Financial Review.

“Australia in that respect is in a slightly better spot because it is a net commodity exporter.

“The current higher commodity prices, by themselves, are actually benefiting Australia.

“But of course the lower trading partner growth is a negative for Australia.”

China, Australia’s largest trading partner, was identified as a source of growing risks, due to “frequent and wider-ranging lockdowns” that have slowed manufacturing activity and “could cause new bottlenecks in global supply chains”, the IMF said.

China’s growth forecast was downgraded to just 4.4 per cent, almost half the 8.1 per cent pace recorded in 2021 when the world’s second-largest economy rebounded from COVID-19.

In Canberra, the Pre-election Economic and Fiscal Outlook (PEFO) is expected to be released by Treasury and Department of Finance on Wednesday.

The IMF tipped local inflation to average 3.9 per cent this year due to surging petrol prices and the low 4 per cent jobless rate, which is tipped to gradually generate better wages growth of around 2.9 per cent in 2022.

Mr Finger said the Reserve Bank of Australia was right to “soon” be increasing interest rates to dampen inflation, but price pressures were not as evident as in the United States, New Zealand and South Korea.

“There’s a risk of course that, over time, inflation expectations might pick up and deanchor and so it’s important for the RBA to stay ahead and raise interest rates accordingly,” he said.

The IMF expects the inflation pressures to be somewhat temporary as oil prices eventually ease and as monetary policy and the government’s budget tighten.

Inflation is forecast to fall to 2.7 per cent in 2023, inside the RBA’s 2 per cent to 3 per cent target range.

“Part of the commodity spike is going to peter out over the coming year or so,” Mr Finger said.

“But a part of inflation is also domestic and homegrown and will take a little bit longer to bring down.”

Despite the near-term income boost from fossil fuels, Mr Finger said the nation must set a “credible” medium-term emissions reduction target to achieve the 2050 net-zero emissions target and facilitate the energy transition.

“As economists, we always stress that a broad-based carbon price probably would be a good way to complement the investment strategy and be the most efficient way to achieve the targeted emissions reductions,” Mr Finger said.

“Then of course we need to look at also compensating those industries and regions most affected by the increasing in carbon price.”

The Coalition government is sticking by its 26-28 per cent emissions reduction goal by 2030, but expects to beat that and achieve a 35 per cent cut on 2005 levels.

The government has refused to introduce an explicit carbon price or tax, instead opting to spend billions of dollars of taxpayer money and rely on technology advancements to reduce emissions.

Labor has set a 43 per cent emissions cut by 2030 and plans to introduce a form of carbon pricing through a so-called safeguard mechanism that puts a cap on emissions of major emitters and permits trading of pollution permits.

Mr Finger repeated the IMF’s calls for a sharper focus on productivity-enhancing reforms to lift innovation, increase competition in product markets and improve infrastructure investment to “harness the potential of the digital economy”.

“We do think it’s important to work on productivity growth,” he said.

“Like in many other advanced economies, that has been on a declining path over the last years in Australia.”

Planning and zoning reforms by state and local governments would also help to increase housing affordability by boosting supply of homes.

Separately, Reserve Bank of Australia board meeting minutes released on Tuesday signalled a June interest rate rise was likely.

Internationally, the RBA noted, “members agreed that the combination of high inflation, declining real wages, rising interest rates and falling consumer sentiment had clouded the near-term outlook for global growth”.

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