World Economic outlook World Bank economic outlook 2012-2013 : The bank warns that "no region and no country will escape the consequences of a serious downturn". Global growth forecasts have been slashed, with the world economy tipped to grow by 2.5 per cent this year, down from the earlier forecast of 3.6 per cent. While the bank says that Europe will be hit hardest, it is expected that growth in other developed countries will also slow.
The Chinese economy, however, is expected to continue to grow strongly, by 8.4 per cent this year, but this is lower than the growth figure of 9.1 per cent last year. While strong Chinese growth augurs well for Australia's commodity exports, the bank expects that prices for commodities will be reduced by at least 9 per cent in 2012, and possibly by an additional 3.3 per cent in 2013. Lower growth and reduced prices for exports will undoubtedly have an impact on a commodities-reliant economy like Australia. With this outlook, the International Monetary Fund's call for an additional $500 billion in funding signals that non-European countries may need assistance in the near future. It is a further reminder of the fragile nature of the world economy
Mr Shorten pointed to fiscal policy and monetary policy as economic levers that will help shield the Australian economy from an international downturn. But the government's fiscal consolidation has not cut deep enough into spending, after years of excessive waste, and we are promised only a slim $1.5bn surplus in 2012-2013.
Mr Shorten has acknowledged that there will be an "impact" on the budget, which must put into doubt delivering such a wafer-thin surplus without further spending cuts at a questionable time in the economic cycle. Although Australia's debt-to-GDP ratio is low by international standards, after overspending on the stimulus during the GFC and showing little fiscal discipline thereafter, Australia may find itself unable to look to fiscal policy in the event of a downturn. On monetary policy, it is true that there is considerable scope to reduce interest rates to stimulate demand.
But government cannot afford to rely on action by the Reserve Bank as a proxy for hard economic policy decisions. As the government turns its attention to the May budget, there is a need for a frank assessment of the international economy and how this will impact upon Australia. To weather the coming economic storm, the government needs to develop a comprehensive and detailed strategy to make the Australian economy more competitive, productive and resilient.
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