The International Monetary Fund recently published its 2018 Asia Pacific Regional Economic Outlook report, Good Times, Uncertain Times: A Time to Prepare, to follow the latest regional update in October 2017.

The report finds that Asia continues to be the main engine of the world’s economy, accounting for more than 60 percent of global growth; three-quarters of which comes from China and India alone. But there are risks and challenges ahead, including from a tightening of global financial conditions, a shift toward inward-looking policies, and—over the longer run—population aging, slowing productivity growth, and the rise of the digital economy.

Although the upsides and downsides to the forecast largely balance out in the near term, over the medium term the downside risks dominate. To manage the risks ahead, the report calls for policies to increase resilience and reinforce growth.

Fiscal policy

In regards to fiscal strategy, the IMF assesses that policymakers should focus on keeping debt under control, and in some economies, a priority is to mobilize higher government revenues [italics from source] to create the room for more spending on infrastructure, healthcare, and education and help support the necessary structural reforms.

The IMF concludes that, given the strong outlook, now is the time for policymakers to implement reforms to support more durable growth that benefits everyone.

Particularly for the region, these priorities are:

  • boosting productivity and investment;
  • narrowing gender gaps in labor force participation;
  • managing the demographic transition;
  • addressing climate change; and
  • preparing job seekers with competitive skillsets to better adapt to the shifts in technology and trade.

Developments in the Australian economy

Australia’s recovery from the end of the mining boom advanced further in 2017 despite setbacks from temporary factors, but domestic demand momentum is not yet broad-based. Aggregate demand was led by strong investment, while consumption remained subdued, held back by weak real income growth. Employment grew strongly in 2017 but wage growth has remained weak.

Inflation increased to 2 percent in 2017 but is still slightly below the target range of 2–3 percent. The housing market is cooling in the eastern capitals, and price increases have moderated in real terms.

Country outlook

Australia’s recovery is expected to accelerate, driven by infrastructure investment and private consumption. Inflation is forecast to return to the midpoint of the target range within the next three years. The baseline outlook assumes a soft landing in the housing market, with price growth slowing gradually, reflecting increased supply, demand shifts toward renting, and eventually higher interest rates.

Overall, IMF estimates and latest projections place Australia’s real GDP growth at around three percent for 2018 and 2019.

(Source: IMF News | Read the Report | Video)

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