This week the International Monetary Fund released its latest six-monthly world economic outlook and global financial stability report. As you might imagine with reports that have “world” and “global” in their titles, they cover a wide range of issues, so let’s breakdown what you need to know.
1. Rough times ahead
The outlook’s title is “Navigating global divergences”, which is economic-speak for saying things are good in some places and bad in others.
For Australia the story is that this year should be better than the IMF expected back in April, but still worse than it expected a year ago. Meanwhile, next year looks to be a shocker – the IMF has revised GDP growth for 2024 from a projected 1.7% in April down to 1.2%:
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But here’s the thing: 1.7% is already terrible; 1.2% is historically bad. From the end of the 1990s recession to the year before the pandemic, median annual GDP growth was 2.9%. The IMF does not expect us to achieve annual growth greater than 2.3% out to 2028:
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The GDP per capita story is even worse – the IMF projects our economy next year to only increase due to population growth.
2. Higher unemployment and inflation
Back in April, the IMF thought Australia’s unemployment next year would be 4.1% before rising to 4.7% in 2027. Now it estimates unemployment will be up to 4.3% in 2024 and hit 4.9% in 2028:
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The good news is the IMF is more optimistic about unemployment for this year than it was six months ago, but you can’t predict historically low economic growth in 2024 and not expect that to affect jobs.
We know that the Reserve Bank thinks we need unemployment to rise to 4.5% to get inflation back below 3%, so it is a bit concerning that these new estimates of higher unemployment are not accompanied by new estimates of lower inflation. In fact, the opposite:
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In April the IMF thought inflation would be under 3% by 2025; now it projects that occurring in 2027.
The IMF did report that across the advanced economies “there is scant evidence of a ‘wage-price spiral’ and real wages remain below pre-pandemic levels” and that “company profits have increased robustly over the past two years, with wages having risen more slowly than prices”.
This is expected to reverse over the next few years as workers attempt to recover the lost value of their wages.
But the IMF notes that inflation generally comes down faster when firms and employees adopt a “forward-looking” expectation rather than a backwards-looking one.
That highlights just how tough it will be for workers to regain the value of their wages, when the pressure will be for them to pursue wage growth over the next two years that ignores the past two.
3. Paying off a mortgage in Australia is harder than elsewhere
The global financial stability report found that over the past year, house prices in many major economies have declined in real terms (ie that house prices have risen by less than inflation), but these declines – sharp as they may be – have not eroded the big surge in prices since 2019:
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It also found that across the major economies, only the US had bigger interest rate raises than here. But because Australia has more mortgages with variable rates, the impact of rate rises here is much bigger.
One other reason the impact is bigger is that the cost of mortgages relative to income is much bigger here than the other nations the IMF examined:
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4. India is not the new China
There have been a few stories around recently about how China’s economy is struggling and that India is about to overtake China’s population.
This will have an impact on Australia, of course, given China is our biggest trade partner. But we need to pump the brakes on the hot takes suggesting that India is the new global economic wunderkind.
China’s economy over the next four years is still expected to grow at around 4% a year, although this is well down on the 10% average growth during the boom. But India is expected to grow at around only 6% a year over the next few years. Fast, yes, but not China-like (nor even like Japan and Korea after the second world war):
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While India will overtake China as the most populous nation, its economy is much smaller. It might become the third-biggest economy in the world by the end of the decade, but that is still much smaller than China or the United States:
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All of which means that until 2029 at least, the US and China will still drive the global economy:
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But as with all things, this assumes that the predictions come true, and as every IMF outlook shows, even six months can drastically change the outlook, let alone six years.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
