Federal Treasurer Jim Chalmers will use the state of the economy speech to cut national growth estimates, citing global economic “headwinds.”
“[T]The headwinds facing our economy – higher inflation at the top of the list, as well as slowing global growth – are now reflected in revised economic results and forecasts,” Chalmers told parliament on Thursday according to an excerpt. of his speech.
Instead of the 4.25% growth in 2021-22 estimated by the Treasury before the elections, GDP growth will reach 3.75%.
Similar half-point cuts will apply in the current fiscal year, when the growth forecast is now down to 3% from 3.5%, and next fiscal year, when GDP grows by 2. % instead of the 2.5% forecast under the former government just a few months ago. from.
Australia’s inflation rate will pick up further “north of 7%”, Chalmers told ABC’s RN Breakfast on Thursday morning. That’s potentially higher than the 7% peak reported for the end of this year by Reserve Bank Governor Philip Lowe, and faster than the 6.1% annual rate reported for the June quarter.
Chalmers also told RN that the government’s “expectation” remained that workers would start to see pay rises faster than the rate of inflation in this legislature. However, slower GDP growth would lead to a “modest increase” in the unemployment rate, which currently stands at 3.5%, its lowest level in 48 years.
Chalmer’s update will echo warnings from the International Monetary Fund earlier this week that rising inflation – and resulting interest rate hikes by central banks – will lower global growth rates this week. year and next. IMF economist Pierre-Olivier Gourinchas said the world was “on the brink of a global recession”.
The growth of the two largest economies has been particularly strong. The United States, where interest rates were raised by 75 basis points for a second consecutive month by the Federal Reserve on Wednesday, may already have entered a technical recession assessed by two consecutive quarters of economic contraction, said the IMF. Rates are rising at the fastest pace since the 1980s.
For China, by far Australia’s largest trading partner, growth could fall to 3.3% in 2022. This is the lowest in more than four decades, excluding the initial decline triggered by Covid in 2020, the IMF said.
“A sustained slowdown in China would have strong global spillovers, the nature of which will depend on the balance of supply and demand factors,” he said. “[F]A further tightening of supply bottlenecks could lead to higher prices for consumer goods around the world, but a drop in demand could ease pressures on raw materials and intermediate goods inflation.
After the consumer price index for the June quarter hit 6.1% – the highest in 21 years – Chalmers told reporters inflation ‘will get worse before it gets better, but it will get better’ .
Chalmers’ speech to parliament will also give details of how slowing growth has affected the new budget he plans to publish in October.
“Australia outperforms a lot of the world, but that doesn’t make it easy to pay the bills back home,” he will say. “Our high inflation is primarily but not exclusively global. It will subside but not overnight.
“We have the strength within us to look at these threats, to navigate our way through this difficult time and to seize the opportunities of this new era.”
Chalmers has made it clear he is open to wage increases even if they contribute to further price hikes.
“Inflation is high and in the short term it will increase – but the main cause of this is not rising wages – far from the good one”, he will say.
“We don’t have an inflation problem because workers earn too much.”
The new treasurer will also use his statement to lay some of the blame for Australia’s predicament on the Coalition.
“Australians are paying a high price for a lost decade,” the speech read. “They know their new government didn’t create this mess, but we take responsibility for cleaning it up.”
However, Chalmers quashed expectations that wage increases will soon match price increases.
“The idea that we were expecting wage growth to follow this pace would not be credible in the short term,” he told reporters on Wednesday.