Property slump to hurt economy

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The decline in housing market is worse than anticipated, pushing the economy into a delicate situation, according to a report by The Australian Financial Review.

The latest finding shows the need for more effort by governments to come up with new sources of growth to offset a worsening shortfall, said Thomas Helbling, the International Monetary Fund's (IMF) lead economist for Australia.

He also said that the pace of infrastructure spending has fallen short of what was scheduled in previous budget figures.

"I think given where the economy is now, that this growth impetus comes forward is important in the current cyclical setting. The ambition [on infrastructure spending] is in many senses welcome," Helbling said. "The housing market downturn is sort of sagging on the demand side, so you want to have other demand sources pulling," Helbling told The Australian Financial Review.

The property market downturn will be among factors causing a likely downgrade in the IMF's latest forecast for the Australian economy.

"In terms of general direction, we're not surprised [prices have fallen]. That said, [the] downturn has been a bit bigger,” Helbling said.

In addition, the decrease in residential investment has come "earlier than expected,” according to Helbling.

The statements suggest that the economy is trailing below what the IMF forecasted six months ago in the most recent World Economic Outlook.

“Back then the fund predicted growth would come in at 3.2% in 2018 before cooling to 2.8%. Official ABS national accounts published last month showed annual growth in 2018 came in materially lower at 2.8%,” The Australian Financial Review said.

Given the state of things, Helbling said the Reserve Bank made the right decision to shift last month from a tightening bias to a more neutral stance.

"I think the question is: will it need to change the monetary policy stance, and I think they are looking at that. It's a delicate situation at the moment," he said.

Helbling said there was still a believable scenario where the economy cools in the first half of 2019 and then rebounds without hurting the labour market or dragging on the inflation outlook.

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