IMF trims Australia’s 2027 growth outlook to 1.6%

The International Monetary Fund has cut its forecast for Australia’s real GDP growth in 2027 to 1.6%, warning that persistent inflation pressures could require further monetary tightening. The reduction is 0.1 percentage points from its previous forecast.

The IMF expects the Australian economy to grow 1.9% this year. In a statement following annual consultations with Treasury, Reserve Bank of Australia and Australian Prudential Regulation Authority officials, it identified inflation and weak productivity growth as key constraints on the economy.

The institution said further increases in global energy prices could strengthen second-round inflation effects and lift expectations, potentially warranting tighter monetary policy. Brent crude rose above US$108 a barrel amid worsening conflict in the Middle East, with the source describing a possible spillover into Australian inflation.

Financial markets are pricing in an 80% chance of an RBA rate rise on 29 September, according to the report. That probability reflects market pricing and does not represent a confirmed decision by the central bank.

The IMF urged federal and state governments to restrain spending and manage rising debt and interest costs. It noted that the combined government deficit had widened over the past two years, while debt-interest costs had increased sharply in New South Wales and Queensland.

The IMF also welcomed efforts to increase housing supply, saying housing remained unaffordable despite price falls. It described weak productivity growth as Australia’s key longer-term structural challenge ahead of the government’s latest intergenerational report.