IMF Warns of Slower Growth for Australia, New Zealand

Australia’s economy is expected to slow over the next two years as global trade tensions and protectionist policies drag on growth, according to the International Monetary Fund’s (IMF) latest World Economic Outlook.

The IMF now forecasts Australia’s economy to expand by 1.8 percent in 2025 and 2.1 percent in 2026, a small downgrade from its July projection.

Longer-term growth is tipped to reach 2.3 percent by 2030, reflecting subdued confidence and weaker global demand.

The Fund said Australia’s outlook is being shaped by U.S. President Donald Trump’s renewed tariff measures and the ripple effects of slowing world trade. While the global economy has held up better than expected, it warned that the recovery remains fragile.

Worldwide, growth is expected to sit at 3.2 percent this year before easing slightly to 3.1 percent in 2026. The IMF attributed this temporary lift to pre-tariff spending sprees and a weaker U.S. dollar that briefly supported exports.

IMF Chief Economist Pierre-Olivier Gourinchas said the situation was “not as bad as feared, but worse than we need.”

“We still see the risks tilted to the downside,” he told reporters, noting the drag from tariffs, debt, and geopolitical uncertainty.

The outlook further said that “larger-than-expected” shocks to labour supply, notably from restrictive immigration policies, could reduce growth, especially in economies facing aging populations and skill shortages.

For Australia, the IMF said global shocks were amplifying domestic challenges—particularly weak productivity growth and high household debt—leaving little room for error in fiscal management.

New Zealand’s Sluggish Growth

The IMF expects New Zealand’s economy to expand by just 0.8 percent in 2025, before lifting to 2.2 percent in 2026.

That means growth will remain subdued next year as high interest rates and weak global demand continue to weigh on spending and investment.

The modest pickup in 2026 suggests a gradual recovery once inflation pressures ease and exports regain strength, though the pace will still trail pre-pandemic levels.

New Zealand’s unemployment rate is projected to reach 5.2 percent in 2025, easing slightly to 5.1 percent in 2026.

The data points to a labour market that remains under strain, with joblessness expected to decline only gradually as economic conditions improve.

Global Economy Under Strain

Beyond Australia and New Zealand, the IMF warned that borrowing and rising defence and energy costs were pressuring public budgets, particularly in advanced economies.

It expects U.S. growth to slow to 2 percent in 2025, while China’s expansion will ease to 4.8 percent the same year and 4.2 percent in 2026. Growth in the eurozone is forecast to hover around 1.2 percent next year.

The Fund said elevated debt ratios and higher interest rates were making post-pandemic recovery harder.

“The calculus of debt sustainability is complicated by worsening balances and a weakening growth outlook,” it said.

These pressures, combined with the inflation risks from new tariffs, leave policymakers with limited flexibility to support demand.

Australia Performing Relatively Well

Treasurer Jim Chalmers claimed Australia’s resilience should not be mistaken for immunity.

Chalmers highlighted that Australia had outperformed many G20 economies last year, maintaining steady quarterly growth while ranking in the top ten for inflation control, low unemployment, and investment.

“Of all G20 countries, last year Australia was the only one to record continuous quarterly growth at the same time as we ranked in the top ten on inflation, low gross debt, and budget balance,” he said in a statement earlier.

Shadow Treasurer Ted O’Brien has blamed the government’s economic management for the weak consumer sentiment, saying “Labor’s economic mismanagement is crushing the hopes of Australian families.”

Chalmers’ High-Level Talks

Chalmers will travel to the United States and South Korea this week for meetings with international counterparts and investors.

The trip will coincide with the G20, IMF, and World Bank annual meetings, and the Asia-Pacific Economic Cooperation forum.

The treasurer said he would use the trip to promote Australia’s strengths as an investment destination and to advocate for stability in global markets.

“Whether it’s our resources or renewable energy, our skills or stability, Australia has exactly what the world needs, when the world needs it,” he said in a statement.