Australia’s economy will expand faster than the International Monetary Fund forecast

Australia’s economy will expand faster than the International Monetary Fund forecast

IMF Raises Australian 2007 Economic Growth Forecast

Australia’s economy will expand faster than the International Monetary Fund forecast five months ago, and any fallout from global financial market turmoil is likely to be “small.”

The IMF raised its forecast for economic growth in 2007 to 4.4 percent from an April estimate of 2.6 percent. The economy will expand 4 percent next year, more than an earlier prediction of 3.3 percent, the fund said in a report on Australia released in Washington. The economy advanced 2.7 percent last year. Red Kangaroo

Australia, the world’s largest exporter of iron ore and coal, is benefiting from record prices for raw materials driven by soaring demand from China. Increased investment by miners, including BHP Billiton Ltd., and a pickup in consumer spending have stoked the fastest annual economic growth in three years and pushed the jobless rate to the lowest since 1974.

“Despite the recent turbulence of the credit markets, growth prospects remain strong as high commodity prices continue to provide stimulus,” the IMF said. “Available indicators suggest that the impact on the real economy is likely to be small.”

Increasing defaults on U.S. subprime mortgages have pushed up credit costs around the world, and sent stock and commodity prices tumbling on concern the rout will damp global economic growth.

The benchmark S&P/ASX 200 Index plunged 12 percent from its July 24 record high in the 3 1/2 weeks to Aug. 17. It has since rebounded 10 percent. “Asset prices have began to show signs of recovery,” the IMF said.

Currency, Shares

Australia’s currency traded at 83.87 U.S. cents at 12:18 p.m. in Sydney from 83.60 late in Asia yesterday. The S&P/ASX 200 index rose 0.3 percent to 6,237.0.

The interest rate Australian banks charge each other for loans rose to an 11-year high this week. The Reserve Bank of Australia, European Central Bank, the U.S. Federal Reserve and others have loaned banks $400 billion over the past month to help lower lending rates.

“The cost of funding for the economy has increased, but strong profits, especially in mining, suggest that investment is not likely to be significantly affected,” the IMF said.

Australia’s economy expanded 4.3 percent in the second quarter from a year earlier, the strongest since mid-2004, as business investment surged, a report this month showed.

“The direct impact of the U.S. credit-market turbulence on Australia is modest,” the IMF said. “Australian banks’ exposure to both U.S. and Australian subprime mortgage loans is low. Some Australian hedge funds have experienced losses,” though these funds “are very small.” Plastic money

Inflation Forecasts

The fund cut its 2007 forecast for increases in Australian consumer prices to 2.1 percent from 2.8 percent previously. Inflation will accelerate next year to 2.8 percent, close to the top of Reserve Bank of Australia’s target range, the IMF predicted.

Reserve Bank Governor Glenn Stevens raised the overnight cash rate target a quarter percentage point on Aug. 8, the first adjustment since November 2006. That took the benchmark interest rate to 6.5 percent, the highest in 11 years.

The rate increase was “appropriate” given emerging inflation pressures, the IMF said, adding that “in light of the recent global financial market turbulence, it will be desirable to maintain flexibility in the conduct of monetary policy.”

Australia’s current account deficit will be equivalent to 5.6 percent of gross domestic product this year and next, the fund said.

Article reference

http://www.bloomberg.com/apps/news?pid=20601087&sid=auUg.M8dEl.I&refer=home

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