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| Fears Australia underestimated Trump’s trade war after IMF slashes $13bn off forecast growth | Fears Australia underestimated Trump’s trade war after IMF slashes $13bn off forecast growth |
| (14 days later) | |
| Grim outlook contrasts with Treasury modelling released by Jim Chalmers this month showing only ‘modest’ impact from US tariffs | Grim outlook contrasts with Treasury modelling released by Jim Chalmers this month showing only ‘modest’ impact from US tariffs |
| Treasury may be underestimating the threat posed by Donald Trump’s trade war, after the International Monetary Fund slashed its outlook for Australia’s economic growth in 2025. | Treasury may be underestimating the threat posed by Donald Trump’s trade war, after the International Monetary Fund slashed its outlook for Australia’s economic growth in 2025. |
| Australia’s annual output will be $13bn lower in 2025 than predicted in January, the IMF’s latest forecasts revealed, with real GDP growth predicted to drop to 1.6%, from 2.1%. | Australia’s annual output will be $13bn lower in 2025 than predicted in January, the IMF’s latest forecasts revealed, with real GDP growth predicted to drop to 1.6%, from 2.1%. |
| The grim outlook from the Washington-based body contrasts with Treasury’s sanguine assessment of only “modest” economic damage from the rise in global protectionism. It also suggests that whoever forms government after 3 May could be forced to respond to a drastically weaker economy than anticipated. | The grim outlook from the Washington-based body contrasts with Treasury’s sanguine assessment of only “modest” economic damage from the rise in global protectionism. It also suggests that whoever forms government after 3 May could be forced to respond to a drastically weaker economy than anticipated. |
| The 25 March budget forecast Australia’s economy would grow by 2.25% in 2025 – substantially more than the IMF expected. | The 25 March budget forecast Australia’s economy would grow by 2.25% in 2025 – substantially more than the IMF expected. |
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| The pre-election fiscal outlook (Pefo) was released on 7 April, the Monday after Trump’s “liberation day” trade announcements, but did not flag any substantial changes to the budget estimates. | The pre-election fiscal outlook (Pefo) was released on 7 April, the Monday after Trump’s “liberation day” trade announcements, but did not flag any substantial changes to the budget estimates. |
| On the same day as Pefo, Jim Chalmers released updated Treasury modelling which showed only a “modest” impact on Australia from US tariffs, even as the local share market plunged and financial markets around the world convulsed. | On the same day as Pefo, Jim Chalmers released updated Treasury modelling which showed only a “modest” impact on Australia from US tariffs, even as the local share market plunged and financial markets around the world convulsed. |
| The IMF’s World Economic Outlook, however, implied Treasury officials may have been too sanguine about the risks. | The IMF’s World Economic Outlook, however, implied Treasury officials may have been too sanguine about the risks. |
| It lent credence to the Coalition’s claims that a failure to properly account for the economic fallout from tariffs may lead to major budget downgrades, especially if prices for key commodities – iron ore and coal – fall more quickly than expected. | It lent credence to the Coalition’s claims that a failure to properly account for the economic fallout from tariffs may lead to major budget downgrades, especially if prices for key commodities – iron ore and coal – fall more quickly than expected. |
| In a statement, Chalmers said the IMF report “confirms that trade tensions are weighing heavily on the global outlook and putting upward pressure on inflation around the world”. | In a statement, Chalmers said the IMF report “confirms that trade tensions are weighing heavily on the global outlook and putting upward pressure on inflation around the world”. |
| “We’re not immune from the turmoil in the global economy but the progress we’ve made together puts us in good stead,” he said. | “We’re not immune from the turmoil in the global economy but the progress we’ve made together puts us in good stead,” he said. |
| “Under the Albanese government, inflation is down substantially, real wages are up, unemployment is low, growth is rebounding solidly and interest rates have started to come down.” | “Under the Albanese government, inflation is down substantially, real wages are up, unemployment is low, growth is rebounding solidly and interest rates have started to come down.” |
| That “solid rebound”, however, may be in jeopardy. | That “solid rebound”, however, may be in jeopardy. |
| The new outlook also foreshadowed a major growth downgrade in the Reserve Bank’s next set of economic forecasts, which will be released in tandem with the next monetary board policy meeting on 19-20 May. | The new outlook also foreshadowed a major growth downgrade in the Reserve Bank’s next set of economic forecasts, which will be released in tandem with the next monetary board policy meeting on 19-20 May. |
| The IMF’s chief economist, Pierre-Olivier Gourinchas, said the US president’s increase of import duties represented a “major shock”, and that it was difficult to judge the severity of the consequences. | The IMF’s chief economist, Pierre-Olivier Gourinchas, said the US president’s increase of import duties represented a “major shock”, and that it was difficult to judge the severity of the consequences. |
| “The global economic system under which most countries have operated for the last 80 years is being reset, ushering the world into a new era,” Gourinchas said. | “The global economic system under which most countries have operated for the last 80 years is being reset, ushering the world into a new era,” Gourinchas said. |
| “Existing rules are challenged while new ones are yet to emerge,” he said, warning of a collapse in mutually beneficial international arrangements as countries are pushed to a zero-sum world of “winners and losers”. | “Existing rules are challenged while new ones are yet to emerge,” he said, warning of a collapse in mutually beneficial international arrangements as countries are pushed to a zero-sum world of “winners and losers”. |
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| The IMF slashed its forecasts for real GDP growth in the US from 2.7% in 2025, to 1.8%. | The IMF slashed its forecasts for real GDP growth in the US from 2.7% in 2025, to 1.8%. |
| Even as activity slows, the IMF lifted its American inflation forecast for this year by one percentage point to 3% – well above the US Federal Reserve’s target of 2%. | Even as activity slows, the IMF lifted its American inflation forecast for this year by one percentage point to 3% – well above the US Federal Reserve’s target of 2%. |
| Gourinchas said central bankers faced a tricky task balancing the inflationary pressures from tariffs – which would demand higher interest rates than otherwise – with slower growth, which would demand the opposite. | Gourinchas said central bankers faced a tricky task balancing the inflationary pressures from tariffs – which would demand higher interest rates than otherwise – with slower growth, which would demand the opposite. |
| And after Trump doubled down on his attacks on the chair of the US Federal Reserve Bank – calling Jerome Powell a “major loser” for not lowering interest rates – the IMF’s top economist responded. | And after Trump doubled down on his attacks on the chair of the US Federal Reserve Bank – calling Jerome Powell a “major loser” for not lowering interest rates – the IMF’s top economist responded. |
| “Monetary policy credibility will be important in all cases, and central bank independence remains a cornerstone,” he said. | “Monetary policy credibility will be important in all cases, and central bank independence remains a cornerstone,” he said. |
| China, which is a target of US import duties of more than 100%, will grow by 4% in 2024, down from 4.6%. | China, which is a target of US import duties of more than 100%, will grow by 4% in 2024, down from 4.6%. |
| China last month recommitted to a 5% annual economic growth target for this year, underpinning expectations of further rounds of public stimulus aimed at shoring up activity. | China last month recommitted to a 5% annual economic growth target for this year, underpinning expectations of further rounds of public stimulus aimed at shoring up activity. |
| Global growth will be substantially lower in 2025, according to the IMF, although not so low as to constitute a worldwide recession. | Global growth will be substantially lower in 2025, according to the IMF, although not so low as to constitute a worldwide recession. |
| “Growth prospects could, however, immediately improve if countries ease their current trade policy stance and forge new trade agreements,” Gourinchas said. | “Growth prospects could, however, immediately improve if countries ease their current trade policy stance and forge new trade agreements,” Gourinchas said. |
| Even as the IMF’s top economist called on countries to step back from the brink of a global trade war, he said “we should ask ourselves why our global system warrants remapping – and recognize that decades of deepening trade ties fostered rapid but uneven economic growth”. | Even as the IMF’s top economist called on countries to step back from the brink of a global trade war, he said “we should ask ourselves why our global system warrants remapping – and recognize that decades of deepening trade ties fostered rapid but uneven economic growth”. |