Outlook for Australia looks good - IMF

CANBERRA - Australia is likely to continue to benefit from Chinese demand for commodities in the coming year, says International Monetary Fund deputy managing director Murilo Portugal.

Addressing the Australian Bureau of Agricultural and Resource Economics 2010 Outlook conference in Canberra yesterday, he said Australia had been remarkably resilient to the global downturn.

"The outlook for Australia is a good one," Portugal said.

The IMF is forecasting the Australian economy to grow by 2.5 per cent this year, before accelerating to 3.0 per cent next year.

Portugal expected the growth to be driven mainly by public and private domestic demand.

"In the coming year, Australia can continue to benefit from China's demand for commodities.

"A large proportion of China's fiscal package is public investment in infrastructure, and that is likely to continue to benefit commodity exporters."

He said Australia's resilience amid global turmoil was the result of robust demand for commodities, a flexible exchange rate and a healthy banking sector.

Timely cuts in interest rates and a sizeable fiscal stimulus were also key factors.

Portugal said it was appropriate now for Australia's interest rates to return to a more normal level, and for the planned phasing out of the Government's fiscal stimulus.

A number of stimulus measures, such as investment in infrastructure, were still needed, he said.

But while Australia's debt levels were low, it was "prudent that at some point Australia goes back to budget surplus".

"We think the Government's plan is appropriate," Portugal said.

However, he did not think central banks should target asset price bubbles through interest rates, saying rates were too blunt an instrument for that specific purpose.

"That doesn't mean that we shouldn't consider asset prices, but perhaps there are other instruments which could be combined with monetary policy to deal with eventual asset price bubbles."

- AAP