Warming could 'devastate' Australian economy: IMF

SMH



November 18, 2006 - 4:08PM


* Little urgency as climate conference fizzles out



Climate change could have a devastating effect on the Australian economy, if the projections of the Stern report on global warming were true, the head of the International Monetary Fund (IMF) warned today.

IMF managing director Rodrigo de Rato said the report on the economic impact of climate change, by former World Bank chief economist Nicholas Stern released in the UK recently, was alarming.

"The link between greenhouse gas emissions and changes in global temperature is now well-established," Mr de Rato said as a two-day meeting of finance ministers and central bankers from the world's 20 largest economies (G20) got underway in Melbourne today.

"It is a matter of fact rather than of faith.

"The consequences of global warming are less certain, but they are expected to be serious."

The Stern report said climate change could cut gross domestic product growth by five to 20 per cent in many countries.

"If these numbers are borne out even broadly by further analysts, they are alarming indeed," Mr de Rato said.

"In terms of the effect on people's quality of life, here in Australia and worldwide, the effects could be devastating."

But Mr de Rato said the present outlook for global economic growth was positive, although there were inflationary risks and called on the world's central bankers to remain vigilant.

Many central banks around the world are lifting interest rates to head off inflationary pressures driven by booming energy and commodities prices and capacity constraints, including the Reserve Bank of Australia which has raised rates three times this year.

"In such circumstances, central banks should remain vigilant and act to preserve the hard-won credibility gains of recent years," Mr de Rato said.

"And on fiscal policy, governments should take advantage of the strength of the current global economy to push ahead with the necessary fiscal adjustment."

The IMF has projected a global growth rate of 5.1 per cent this year and 4.9 per cent in 2007.

"So our central forecast remains broadly unchanged for another year of robust and more balanced global growth," he said.

However, there were downside risks to growth, including any further slowdown in the US economy driven by a correction in the housing market.

"The outlook for inflation also remains uncertain," Mr de Rato said.

"The fall in energy prices since September helps, but we do not know whether this will be sustained."

Mr de Rato said thus far the US economy had cooled faster than expected, after a series of rate hikes, but that had been offset by more rapid growth in Europe and continued strength in major emerging economies.

"The outlook for the global economy remains good, but there are significant downside risks," Mr de Rato said.

He said another risk to world growth was any instability in the financial system.

"While financial crises appear a remote possibility in today's benign economic environment, it would be complacent to assume they have disappeared forever," he said.

AAP