A new report by the International Monetary Fund declares that the global economy is in “a dangerous new phase”, thanks to natural disasters, a debt crisis in Europe and financial uncertainty.

The IMF also slashed its predictions for growth in the Australian economy in 2011 in its World Economic Outlook report, down from 3% to just 1.8%. It’s significantly lower than recent predictions by the government and the Reserve Bank of Australia, indicating that a return to budget  surplus in 2012-13 will be more difficult than expected.

The IMF predicts Australia’s economic growth in 2012 will be 3.3%, noting that natural disasters slowed growth in Australia, but only temporarily. It also encourages Wayne Swan’s promises to return the budget to surplus, noting: “In Australia, the planned return to surplus by 2012-13 is welcome, as it will increase fiscal room and take pressure off monetary policy and the exchange rate. The mining boom also provides an opportunity to build fiscal buffers further over the medium term and contribute to national saving.”

But Australia is faring better than most, with the growth of most advanced economies globally forecast as “anaemic”. “And even under the most optimistic assumptions, growth in advanced economies will remain low for some time,” says the report.

The IMF even gives itself a slap on the wrist for not acting earlier in the introduction, noting that there was a “… much slower recovery in advanced economies since the beginning of the year, a development we largely failed to perceive as it was happening”.

What does this mean for Australia? No need to worry, says Michael Stutchbury in The Australian. “The global economy’s two-speed divide is deepening. Luckily for us, Australia remains in the fast-speed, Chinese lane,” writes Stutchbury.

Meanwhile, minutes from the most recent RBA board meeting noted that despite overseas trends, in general the Australian economy — and its banks — are holding on well:

“The local sharemarket also moved generally in line with its global counterparts, but in contrast to recent months, it tended to outperform other markets. Earnings reports released during the month were, on balance, either in line with or in excess of analysts’ expectations, although some of these expectations had been pared back in recent months …

… The Australian banking system remained in a relatively strong condition. The recent global market turbulence contributed to falls in Australian banks’ share prices and some tightening in wholesale funding conditions, but the overall effect had been modest compared with the experience in most other countries and in 2008.”

The RBA is sitting in a nice spot compared to its global counterparts, writes Michael Pascoe in The Sydney Morning Herald: “There’s room to cut, room to increase and plenty of room to do nothing at all. This is, after all, a relative safe haven in a sea of uncertainty. Just ask foreign central banks.”

Our own Treasurer Wayne Swan has just been declared the Euromoney Finance Minister of the Year for 2011, mostly for his role in implementing the economic stimulus package. It’s only the second time an Australia has won it, the last being Paul Keating in 1984.

“The award is the first piece of good news for the Gillard government for some time and vindicates the economic argument it has been trying to make that Australia is faring better than the rest of the world, despite its internal economic problems,” notes Phillip Coorey in the SMH.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey