As the recovery among the world’s advanced economies becomes broader Australia looks set to remain below trend growth until 2016, the International Monetary Fund predicts.
In its latest World Economic Outlook, the IMF says the acute risks to global growth that have dominated for a number of years have decreased.
As well, investors are less worried about debt sustainability and banks are gradually becoming stronger.
“Although we are far short of a full recovery, the normalisation of monetary policy … is now on the agenda,” the IMF’s economic counsellor Oliver Blanchard says in the report that was released in Washington on Tuesday.
Advanced economies are expected to growth by 2.2 per cent on 2014, a marked improvement on the 1.3 per cent they collectively achieved in 2013.
Growth of 2.3 per cent is forecast for 2015.
The IMF believes the recovery seems “solidly grounded” in the US, while growth is projected to be positive but varied in the Euro area.
In Japan, so-called Abenomics – named after the economic policies of Prime Minister Shinzo Abe – still needs to translate into stronger domestic private demand for the recovery to be sustained, Mr Blanchard said.
World growth is seen at 3.6 per cent in 2014 and 3.9 per cent in 2015, little changed from the Washington-based institution’s forecasts in October.
On Australia, it expects growth to remain below a trend pace of about 3.25 per cent both this year and next as the slowdown in mining-related investment continues.
It predicts growth of 2.6 per cent in 2014 and 2.7 per cent in 2015, which will see unemployment rise to 6.2 per cent, up from the six per cent now.
In contrast, neighbouring New Zealand will grow at 3.3 per cent in 2014 and three per cent in 2015, helped by reconstruction spending.
Unemployment there is expected to fall to 5.2 per cent this year and to 4.7 per cent next year, down from 6.1 per cent in 2013.
In China, Australia’s number one trading partner, economic growth is expected to moderate slightly from 7.7 per cent in 2013 to 7.5 per cent this year and 7.3 per cent next year.
“The announcement of the government’s reform blueprint has improved sentiment, but progression rebalancing the economy remains tentative,” it says.