The International Monetary Fund’s (IMF) annual review of the Australian economy has identified high levels of mortgage debt as the biggest risk for the coming year.
The IMF said that while Australia had managed to outperform most other developed nations, expanding 0.4 per cent in the first quarter, the near-term outlook remained highly uncertain as household debt and short term external borrowing are “high by advanced country standards”.
“A sharper than expected deterioration in banks’ asset quality, possibly stemming from lower house prices, could constrain credit and deepen the downturn,” the IMF said in a statement on Friday.
The IMF’s sombre view of the economic outlook is in stark contrast to the Reserve Bank of Australia’s forecast of a “durable recovery”.
The RBA estimated Australia’s economy to grow 0.5 per cent by December on Friday, however, the IMF expects the economy to contract 0.5 per cent before the end of the year.
The IMF said in an emailed statement that the worst of the crisis may be yet to hit the Australian economy.