Federal Treasurer Joe Hockey says the International Monetary Fund's latest outlook confirms the risks ahead for the Australian and global economy.
Photo: Joe Hockey says the IMF report confirms "significant" risks to the budget (AAP: Alan Porritt)
The latest World Economic Outlook downgrades Australia's growth rates by 0.5 percentage points from the previous April release, to 3 per cent this year and 3.3 per cent next year.
The IMF is more optimistic than the Reserve Bank of Australia, who in August issued a downgraded growth forecast of 2.25 per cent.
The forecast is in line with Treasury's prediction of 2.5 per cent growth this year.
The IMF also says Australia's unemployment rate is forecast to rise to 6 per cent next year, up from 5.2 per cent in April.
Mr Hockey says the unemployment figures are "worrying" and confirms "significant" risks to the budget will need to be managed.
The IMF has also trimmed its global outlook, down from 3.1 per cent to 2.9 per cent after factoring in a short US government shutdown.
The outlook projects the US economy will grow 1.6 per cent this year and accelerate to 2.6 per cent in 2014, down respectively 0.1 and 0.2 percentage points from its July forecast.
The IMF says the reduction is due to the impact of the sharp sequester spending cuts instituted by the government earlier this year that were aimed at trimming the federal deficit.
But it has warned things could turn worse if the week-old government shutdown, due to lack of agreement by warring political parties over the budget, continues much longer.
It has also warned that if the political paralysis prevents an increase in the US borrowing ceiling, the government could be forced to default on its debt, which would rock the global economy.
Read the IMF's economic outlook here.
IMF chief economist Olivier Blanchard told a press conference not raising the debt ceiling "will lead to an extreme fiscal consolidation and almost surely derail the US recovery".
He added that if the US then defaulted on debt payments, it "will be felt right away, leading to potential major disruption in financial markets both in the US and abroad".
Photo: The IMF has warned the US government shutdown could lead to a damaging debt default. (AFP: Emmanuel Dunand)
Mr Blanchard called a US default "a low-probability event", but another slump in US stocks overnight, with no end in sight to the political stalemate in Washington, showed investors were growing nervous.
The US Treasury has said the $US16.7 trillion borrowing ceiling needs to be raised by October 17 or it will run out of cash.
In its newest economic forecast, the IMF said the US economy still needs the Federal Reserve's easy-money policy, including its $US85 billion a month bond-buying program, which the fund said should be trimmed only slowly over the next year.
It said growth will pick up over next year as the Fed's ultra-low interest rates and its stimulus aid economic activity and help boost stock and property prices, strengthening household finances.
It also expects unemployment to slowly improve without any parallel rise in inflation, so that the Fed could afford to keep supporting growth.
ABC/AFP
