IMF too optimistic on Australia and New Zealand

In its latest World Economic Outlook, the IMF predicted Australia’s economy to expand by 1.7% in 2019 and by 2.3% in 2020. While the 2019 forecast is consistent with our own expectations, their forecasts assume a larger bounce in GDP growth next year than we anticipate. We expect the weakness in homebuilding will mean dwellings investment declines further and we expect that subdued consumer confidence will mean consumption growth only rises from 1.6% this year to 2.0% next year. Overall we expect growth in Australia to pick up from 1.7% in 2019 to 2.0% in 2020. And the differences between our forecasts and the IMF’s are even starker for New Zealand. The IMF thinks growth will pick up from 2.5% in 2019 to 2.7% in 2020. In contrast, we think growth will slow from 2.2% this year to 1.5% next year. Subdued GDP growth is one reason why we expect further rate cuts by both central banks and why we now expect the RBA to launch QE in 2020.