The International Monetary Fund (IMF) has issued a stark warning for Australia, projecting the nation will experience a "drawn-out persistence in above-target inflation". This assessment comes as local economists and financial markets increasingly bet the Reserve Bank of Australia (RBA) will be forced to increase interest rates this year.
Key Data to Guide RBA's February Decision
All eyes are now on two critical pieces of domestic data. Unemployment figures released on Thursday will be followed by the latest consumer price index (CPI) data the following Wednesday. This information will be pivotal in determining whether the RBA proceeds with an interest rate hike at its next meeting on 3 February.
Global Resilience Masks Underlying Fragilities
In its latest World Economic Outlook update, the Washington DC-based fund noted the global economy has largely "shaken off" the immediate impact of recent tariff threats, attributed to a historic surge in technology investment in the United States and a resilient Chinese economy. Consequently, the IMF upgraded its forecast for global growth to 3.3% this year, up from an October estimate of 3.1%.
Remarkably, the IMF stated that current global projections are broadly unchanged from a year ago. However, the report cautioned that this stability "masks underlying fragilities tied to the concentration of investment in the tech sector." It further warned that the negative growth effects from trade disruptions are likely to accumulate over time.
Steady Forecast for Australian Growth
For Australia specifically, the IMF left its economic growth forecasts unchanged. It predicts the country's real GDP will climb by 2.1% in the current fiscal year, followed by a 2.2% increase in the next. The persistent inflation warning, set against this steady growth backdrop, presents a complex challenge for policymakers at the RBA as they weigh their next move on monetary policy.
