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Australia's government should consider slowing its path to budget balance and instead spend more on growth-friendly infrastructure projects, IMF staff said in their annual check-up on the economy. The International Monetary Fund report also recommended the Reserve Bank of Australia (RBA) keep monetary policy stimulative, given that risks to the economy and inflation remained on the downside.
"Ensuring the return to full employment under weak global conditions will need continued accommodative monetary policy and quality infrastructure spending, which will also boost long term growth potential," IMF staff wrote in their regular assessment. While Australia was transitioning from a mining boom with strong growth and relatively low unemployment, it had not been immune to symptoms of the "new mediocre", the report said.
Business investment outside of mining had disappointed, underemployment remained high and wage growth sluggish, said the Washington-based organisation. The report recommended the conservative government of Malcolm Turnbull slow efforts to balance its budget on a five-year horizon.
"In IMF staff's view, the pace of targeted fiscal consolidation under the baseline should be more gradual and some of the growth-friendly spending should be ramped up." In particular, plans to tighten fiscal policy aggressively in 2017/18 could prove counter-productive, the report said. Rather, the government should consider spending more on infrastructure, a hot-button topic in Australia.

Copyright Reuters, 2016

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