Trump-style protectionism will hurt economy: IMF

Australia's heavily-indebted economy is at risk from Trump-style protectionism and potential fallout from badly roiled financial markets, according to the International Monetary Fund (IMF).

The IMF warns that Australia hasn't escaped worldwide symptoms of financial sickness, despite having survived the end of the resources boom relatively well.

Dr Thomas Helbling, mission chief for the Australia-New Zealand division of the IMF, said the organisation's main fear is that Trump-like protectionism, that slams global trade, would reverse globalisation.

"Nations will turn inward and there will be less global trade," Helbling said.

The federal government was challenged to do more to lift productive infrastructure investment.

The IMF team of economists warned that the RBA no longer has much interest rate ammunition to stave of a potential downturn.

The fund recommends the RBA should lengthen its forecast horizons beyond two years to reinforce its longer-term view that inflation will return to its 2-3% range.

They urged the Turnbull government to ramp up its commitment to restricting the country's debt, which they suggested was getting out of control, by introducing a 'longer-term debt anchor'.

"Rather than have vague notions of debt in the room it might be helpful to be specific about the debt objective and feed this back to what this means for the conduct of fiscal policy," Helbling said. 

Helbling also warned that Australia as an open economy could be hurt by any reversals.

"We would for example expect that if there were less trade, that global growth would slow, [and] commodity prices would decline with corresponding implications for Australia," he told The Australian Financial Review.

While overall threats to the economy have lessened since the fund's last comprehensive assessment in early 2015, its analysts warn that decision-making by the federal government will be "critical" to cutting employment in a "fragile global environment".

Helbling suggested that a tighter policy would also help frame the need for spending decision that will emerge as the population ages.

The fund also urged the government to increase plans for a pipeline of infrastructure investments to prepare for the next major crisis.

The IMF team's preliminary report will now be turned into a formal so-called Article IV report due in early 2017.