Photo credit: Daily Mail
A global financial agency has warned Australia that “stronger-than-expected” government spending and high immigration are fuelling inflation and stopping interest cuts.
DailyMail. com reports that the International Monetary Fund warned about excessive government spending and population growth a few months before Prime Minister Anthony Albanese’s upcoming election.
As employment is at a low of 3.9 percent, the IMF warned that too much government spending was likely to stop the Reserve Bank of Australia from cutting interest rates. Meanwhile, borrowers in the rest of the world will get some relief.
The IMF said, “Domestically, persistent labour market tightness, stronger than expected fiscal impulses and lower spare capacity than currently assessed could contribute to stalling the disinflation process, potentially leading to higher-for-even-longer interest rates that adversely impact consumption and investment.”
Its December 2024 report on Australia also suggested the federal government needed to cut spending to help the RBA fight inflation, arguing it would be unable to cut interest rates until public expenditure was reduced.
The IMF warned that failing to bring down Australian inflation could mean rate rises and big cuts in government spending The body also noted that while record-high immigration had stopped Australia from sinking into a recession, the strongest population growth of any OECD nation was causing a housing shortage and leading to more government spending.
The IMF’s warning about public spending has been made just weeks after Reserve Bank of Australia Governor Michelle Bullock warned, “It’s not just the federal government, it’s the state governments as well” with transport infrastructure projects that are adding to inflation.
The report emphasizes that while an increase in immigration and public demand has prevented Australia from sinking into recession, inflationary pressures have persisted with upside risks stemming from the labour and housing markets.
