IMF Downgrades Australia Growth Forecast and Urges Rate Hikes

The International Monetary Fund downgraded Australia's 2027 real GDP growth forecast to 1.6%, a 0.1 percentage point decrease, and projected 2026 growth to slow to 1.9 percent. The organization stated that a previously anticipated soft landing for the economy failed due to weak productivity growth and conflict in the Middle East.

In a report released Thursday, the IMF advised the Reserve Bank of Australia to prioritize returning inflation to target and stand ready to hike interest rates as needed. It warned that rising global energy prices could further lift inflation expectations and that the boom in AI and data centers might increase electricity costs if renewable energy projects are not accelerated.

While the IMF approved recent federal budget measures regarding housing and investor taxes, it urged the government to adopt a more ambitious reform strategy. Specific recommendations included replacing stamp duties with a recurrent land tax and shifting the tax burden from income to consumption. The IMF also called on federal and state governments to implement more disciplined budgets and cut spending to manage widening deficits and rising debt.

Treasurer Jim Chalmers welcomed the report as a timely endorsement of the government's economic strategy. Conversely, Shadow Treasurer Tim Wilson argued the findings demonstrate that government spending is worsening inflation.