Grim warning as global firm downgrades Aussie economy
Updated . First published at
The International Monetary Fund has downgraded its forecast of Australia’s economic growth from 2 per cent to 1.9 per cent this year.
The economy is expected to slow further next year to 1.7 per cent.
Australia’s economic growth is expected to slow to 1.9 per cent this year. Renee Nowytarger
Meanwhile, global growth is projected to be 3 per cent this year and 3.4 per cent next year – also down from the global average of 3.5 per cent.
The slowdown was caused by the war in the Middle East, but was partly offset by the increasing demand for artificial intelligence.
“The impact varies widely based on countries’ exposure to the war and position in the technology value chain,” the IMF said in a July update.
Treasurer Jim Chalmers defended the state of the economy, saying Australia is growing faster than the G7 countries.
“These new IMF forecasts have Australia growing faster this year and next year than every major advanced economy except one,” he said in a statement.
“Despite the pressure people are under and the challenges coming at us, we have historically low unemployment, faster annual growth than almost every major advanced economy, smaller deficits and less debt than we inherited, and booming business investment.”
Australia’s slowing economy comes as the OECD found it had one of the sharpest declines in living standards in the developed world, as real wages dropped by 5.1 per cent since March 2021.
“This sustained erosion of purchasing power points to persistent pressures on household incomes, even as the labour market has remained broadly solid,” it said.
“These pressures are compounded by a decline in the real minimum wage between April 2025 and April 2026, placing Australia among only 11 OECD countries where this occurred and further weighing on the incomes of the lowest-paid workers.”
The Reserve Bank of Australia (RBA) is weighing up the state of the economy and the above-target inflation rate ahead of its next meeting in August.
Inflation unexpectedly slowed to 4 per cent in the 12 months to May, which was the lowest level in three months.
However, the trimmed mean – the RBA’s preferred measure of underlying inflation – rose by 0.2 per cent to 3.6 per cent.
On Wednesday, Assistant Governor and Chief Economist Sarah Hunter warned that high unemployment may be needed to lower inflation and expectations.
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