Australia’s housing market contraction is worse than first thought, a top IMF analyst has said, leaving the economy in what he called a “delicate situation” that boosts the need for faster infrastructure spending and even potential interest rate cuts.

In an exclusive interview, the International Monetary Fund’s lead economist for Australia, Thomas Helbling, endorsed last week’s federal budget forecasts by the Reserve Bank of Australia Bank (RBA), which recognised a “weaker outlook” for the country’s economy and gave more downbeat commodity price forecasts.

Given those factors, Helbling said the Reserve Bank was right to shift attitudes on interest rates last month from a tightening bias to a more neutral stance given weaker-than-anticipated GDP figures for Q4 2018 and “signals of weakness” elsewhere across the economy.

Helbling added: “I think the question is will it need to change the monetary policy stance, and I think they are looking at that. More infrastructure is coming. The problem is not that it has fallen short, more that the nature of the spending is difficult to sustain given each year you have to build more than you did the last to add any growth at all and as projects roll off that gets more and more difficult.”