The assessment, in the Fund’s latest World Economic Outlook released overnight in Washington comes as the latest Australian survey finds that consumer confidence has sunk to a new 15-year low.
Ahead of flying off to Washington later today for the half-yearly meetings of the IMF and the World Bank the Treasurer Wayne Swan said that a recession in the United States would affect Australia and that it could well have a fundamental impact on our two fastest-growing customers, China and India.
The Westpac-Melbourne Institute consumer sentiment survey suggests that confidence has collapsed since the start of the year.
Whereas in January 47 per cent of Australians agreed that now was “a good time to buy a major household item” by last week that figure had fallen to 27 per cent...
Significantly the proportion of Australians believing that now was a “bad time” to make such a purchase climbed above 50 per cent.
The slide of 1.3 per cent in the confidence index in April followed a slide of 9.1 per cent in March and the biggest three-monthly slide on record.
It came in a month in which the Reserve Bank did not lift interest rates.
The breakdown shows that the collapse in confidence has extending well beyond mortgage holders, drawing in outright homeowners and renters, whose sprits had previously been comparatively high.
The confidence of tenants slid nine per cent in the April.
On the 7.30 Report last night Report the Treasurer Wayne Swan confirmed that the Chairman of the retailer Myer, Bill Wavish had complained to him directly that the Reserve Bank was hitting consumer confidence “with a hammer”.
Mr Swan said that while that was a “tough assessment”, he believed in the independence of the Reserve Bank.
Asked whether he agreed with the approach the Bank had taken, Mr Swan said he was “completely in step” with it.
“The most important thing that we have to do is to deal with the primary cause of high interest rates which is high inflation,” he said.
The Opposition Treasury Spokesman Malcolm Turnbull accused Mr Swan of talking down the economy by focusing on inflation saying such talk was hurting “consumer sentiment, business confidence, and inflationary expectations”.
The IMF’s forecasts released overnight have Australia’s inflation rate remaining well above the Reserve Bank’s ceiling of 3 per cent both this year and the next.
They predict that Australia’s economic growth rate will slide from 3.9 per cent to 3.1 per cent in the coming two years and that Australia’s rate of unemployment will edge up to 4.3 per cent.
The IMF has cut its forecast for growth amongst the advanced economies in total to just 1.3 per cent in 2008 and 2009..
It predicts that the United States will tip into a mild recession this year before starting a modest recovery in 2009.
Its forecasts for global growth have been sliced to 3.7 per cent and 3.8 per cent, and it warns in the document that the risks to those forecasts are “tilted to the downside”.
“The IMF staff now see a 25 per cent chance that global growth will drop to 3 per cent or less during 2008 and 2009 - equivalent to a global recession,” the statement says.
“The greatest risk comes from the still-unfolding events in financial markets, particularly the potential for deep losses to seriously impair balance sheets and cause the current credit squeeze to mutate into a full-blown credit crunch.”
