Australia’s economy in “weakened state”, Bridget McKenzie says, as IMF delivers recession warning

Australia’s position in the economic maelstrom triggered by the US-Israel war on Iran is a “weakened” one, Nationals Senator Bridget McKenzie says, after the International Monetary Fund warned the energy crisis could tip the world into a global recession.

In its latest economic outlook, the IMF predicted inflation will remain above the Reserve Bank of Australia’s 2 to 3 per cent target range for at least another two years – rising to 4 per cent in 2026, before cooling to 3.2 per cent in 2027.

Real gross domestic product – which is economic outlook minus inflation – is also tipped to slow to just 2 per cent in 2026 before sliding to 1.7 per cent in 2027.

The IMF said global economies will be tested again due to the Middle East conflict.

“The conflict has already inflicted humanitarian costs, damaged critical infrastructure, and severely disrupted maritime and air traffic in the affected region,” the IMF said.

It also warned prices across the globe would rise.

Speaking to Seven’s Sunrise on a panel alongside Housing Minister Clare O’Neil, Senator McKenzie described the situation as “worrying”.

“I think the the high inflation, low growth scenario that we’ve entered this global crisis in has meant we’ve arrived here in a much weakened state,” she said.

“ ... And the IMF is saying what you and I and (Ms O’Neil) have discussed for many months and is that this government needs to get its spending profile under control.

“The big test for the treasurer at this upcoming budget is will he, for the first time in four years, make the tough decisions that our whole economy needs, if we’re going to save our country from the very worst of this global crisis.”

Earlier, Ms O’Neil outlined the balance between giving Australians the relief they needed, while responsibly spending as a government, as the “key challenge that confronts the nation”.

She pointed to Anthony Albanese’s diplomatic efforts to shore up Australia’s fuel supply as evidence of the government’s preparation for the crisis.

“You’ve seen the Prime Minister visiting Asia, talking to world leaders to make sure that we’ve got security of supply and that we’re at the front of those queues,” she said.

“But the second thing we need to do, and this is absolutely imperative for the government leading into the budget, is think about Australian households.

“There is a lot of uncertainty for Australian at the moment, and we absolutely recognise that people were already under pressure before we saw those increases to fuel prices and all of the things that are yet to come on the Iran front.”

IMF report reflects ‘dangerous times’: Chalmers

The IMF’s report arrived just a day before federal Treasurer Chalmers’ set off to Washington DC, where he is due to meet with G20 finance ministers and central bank governors to address global economic uncertainty.

On Wednesday, Mr Chalmers was asked if the IMF’s various scenarios aligned with those modelled by Treasury.

He told the ABC: “Well, this is a really dangerous time for the global economy.” “The International Monetary Fund is expecting slow growth and higher inflation, and we are too. We will see those global developments play out in our own forecasts in the budget in May.

“And so, the IMF is really sounding the alarm here about some of these more severe scenarios. And what it tells us, once again, is that from an economic point of view, the end of this war can’t come soon enough.

“We need to see an enduring end of the war. We need to see the Strait of Hormuz properly opened.

“And even when that happens, we need to acknowledge that some of the consequences of this war on the other side of the world will be felt for some time.

“Now, Australians didn’t choose the circumstances of that war, but they are paying a very hefty price for it.”

The IMF also urged government in advanced economies to show fiscal restraint, noting in its report that some had been “too loose with their budgets”.

Critics, including prominent economists, have argued that the Albanese government’s spending priorities are fuelling rising inflation in Australia.

Asked about the IMF’s warning, Mr Chalmers said: “Well, first of all, the IMF report acknowledges that different countries are in different circumstances.” “We’ve engaged and made a lot of progress on budget repair over the course of the last three and a half years,” he said.

“We’ve acknowledged even before this conflict in the Middle East that there’s more work to do, and people will see some of the fruits of that work in the budget.”

He conceded budget considerations had been affected by the outbreak of war in February but said: “It will be focused on two things overall: resilience and also economic reform.” Mr Chalmers also did not fuel out extensions to the fuel excise, should prices continue to rise.The federal budget will be handed down on May 12.