SYDNEY (Reuters) – Australia’s economy is expected to accelerate at a “modest” pace as weak wage growth is seen weighing on consumption, keeping the need for stimulative monetary and fiscal policies, the International Monetary Fund said on Monday.
The IMF said that interest rates in Australia were “appropriately accommodative.”
The Reserve Bank of Australia (RBA) has left rates at a record low 1.50 percent for more than a year now with core inflation below its 2-3 percent target band for two full years.
“With stronger momentum in domestic demand and inflation close to the mid-point of the target range not yet secured, continued macroeconomic policy support will remain essential,” the IMF said in a report after visiting the country.
“With Australia’s recovery lagging that of other major advanced economies, monetary policy should remain firmly focused on ensuring stronger sustained momentum in domestic demand and inflation.”
The IMF believes that Australia’s A$1.7 trillion ($1.3 trillion) economy could still grow at “above-trend rates” thanks to infrastructure spending by the government.
The boost from infrastructure will have positive spillovers to private investment and more than offset the declining contribution from residential investment.
The report said there was scope to expand on infrastructure spending, beyond the government’s current projects.
“Further increases in investment have the potential to improve physical and digital interconnectivity, both internally and with Australia’s trading partners, thereby contributing to higher growth.”
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