Australia’s economic outlook ‘favorable’

Australia’s economic outlook is favorable, with activity “expected to bounce back in the second quarter” of the year, the International Monetary Fund said.

“We project real GDP growth of 2 percent for calendar year 2011 and 3.5 percent in 2012 on the back of strong demand for commodities and private investment in mining and liquefied natural gas,” the IMF said in a statement on its website Saturday. “We expect employment to grow at a slower pace than in recent years but the unemployment rate should remain below 5 percent in 2011 and 2012.”

The country’s external current account deficit is expected to narrow to 1 percent of GDP in 2011 before “progressively widening to about 6.5 percent of GDP in the medium term,” assuming the real effective exchange rate remains at its current level, the IMF said.

Australia’s recovery is being driven by a mining boom, with trade at “historic highs reflecting strong demand for commodities from China and other Asian economies,” according to the Washington-based IMF.

The risks to Australia’s economy are “broadly balanced,” the fund said.

“An upside risk is that investment in the resource sector could be larger than expected, boosting growth and adding to inflation pressures,” the IMF said. “On the downside, a key risk is that the global recovery stalls or Asian growth falters, impacting demand for commodities.”

The Australian dollar had the biggest weekly decline against its U.S. counterpart since May 2010 after the Reserve Bank of Australia lowered its forecast for 2011 economic growth yesterday.

The RBA cut its forecast for growth in 2011 to an average of 2 percent from its May 6 estimate of 3.25 percent. It increased its estimate for the increase in 2012 gross domestic product to 4.5 percent from 4.25 percent. The estimates assumed the cash rate to be unchanged over the forecast period, compared with “the technical assumption in May of a 50 basis points rise by mid-2013,” the RBA said.