The IMF warning coincides with official confirmation that China\’s economic growth, the engine room of Australia\’s resources boom, slowed more sharply than forecast, to 6.
8 per cent from 9 per cent in the final quarter of last year, as the global downturn hit.
Australia affected by China\’s crisis
With the Asian giant now gravely suffering too, reporting just 6.8 percent growth in the last quarter of 2008, signs emerged of a knock-on effect, with Australia warning of the impact on its own prospects.
“The Chinese boom that supercharged Australia\’s economy over the past five to seven years is receding rapidly,” Australia\’s Finance Minister Lindsay Tanner said.
Rate cuts \’may not be enough\’
The IMF\’s first deputy managing director, John Lipsky, told The Australian yesterday the global recession was deepening even as central banks repeatedly cut interest rates.
While backing the principle of using government budgets to support growth, he cast doubt on whether short-term fiscal expansion – such as the Rudd Government\’s one-off payments to households – would boost spending and stave off recession.
Mr Lipsky said governments in the US, Europe and Britain needed to do more to stabilise their financial crises as a precondition for economic recovery.
“The contraction in the major economies in the fourth quarter of last year was as striking and as severe as we have seen in modern times,” he said at the IMF\’s Washington headquarters.
“Moreover, there is no sign the contraction has stopped.”
The IMF is expected next week to lower its global growth outlook for this year for the third time in four months. In early November, the fund predicted the advanced economies would contract by 0.25per cent this year, which would be the first negative result since World War II.
Tanner hints at tax cuts
Mr Tanner hinted yesterday the government could cut taxes to try to stave off a recession.
Mr Tanner says the government will push ahead with another economic stimulus package to boost the economy, if it\’s necessary.
The last package involved cash handouts. The next one could mean tax cuts.
“The options that are in the mix at any time will involve either increased spending or reduced taxation,” Mr Tanner told the ABC.
“At any given time for a government in these circumstances those options are open,” he said.
“I don\’t rule things in, rule them out, whatever, they\’re options that are available there for the budget.”
He said some tax cuts were due to come into effect in the next budget anyway, and noted there was speculation about whether those cuts should be brought forward.
Mr Tanner pulled no punches on the dangers ahead for the Australian economy.
“We are in completely uncharted territory here economically.”
Mr Tanner said the federal budget surplus was smaller than previously predicted, but it was still in the black.
“The government on the latest figures believes the budget remains in surplus … I would necessarily say wafer-thin, but it\’s getting pretty tight.”
Asia\’s champion exporters suffer
China wasn’t the only country affected in Asia as Japan warned it was facing a two-year recession and announced new measures to repair battered credit markets after announcing a 35-percent plunge in exports in December.
“Exports tumbled so much that you cannot believe your eyes,” said Naoki Murakami, chief economist at Monex Securities in Japan.
South Korea said its economy was in the worst shape since the East Asian financial crisis a decade ago while Singapore announced a 13-billion-dollar stimulus package and said it would tap its vast financial reserves for the first time.