FILE PHOTO: People are silhouetted against the Sydney Opera House at sunset in Australia. REUTERS/Steven Saphore/
SYDNEY -Australia’s recently-elected Labor government took a scalpel to the country’s economic growth forecasts on Thursday, warning soaring inflation and higher interest rates represented a once-in-a-generation challenge.
Speaking in parliament, Treasurer Jim Chalmers cut forecast economic growth by half a percentage point for this fiscal year and next. He predicted inflation would now peak at 7.35 percent, rather than the 4.25 percent forecast by the previous government back in March.
“The economic picture I have set out today represents a convergence of challenges, the kind of which comes around once-in-a-generation,” said Chalmers, who won office in a May election.
Treasury now sees the economy growing 3 percent in the year to end June 2023, and a sub-par 2 percent in 2023/24. Unemployment is expected to edge up from the current 48-year low of 3.5 percent, to 3.75 percent by the middle of next year and to 4 percent by mid-2024.
Wage growth was expected to pick up smartly to 3.75 percent over the coming year, from the current sluggish 2.4 percent pace.
That would still lag behind inflation which was forecast to run at 5.5 percent through 2022/23, before cooling to 2.75 percent in 2023/24.
“Inflation will unwind again, but not in an instant,” said Chalmers. Consumer prices surged 6.1 percent in the year to June, the fastest pace in 21 years.
Interest rates have also been rising rapidly from record lows put in place during the COVID-19 pandemic, with the Reserve Bank of Australia (RBA) expected to deliver a fourth hike in as many months at a meeting next week.
The budget deficit, however, was set to be far lower than forecast thanks in large part to sky-high prices for many of Australia’s major commodity exports.
Data on Thursday showed export prices jumped 10.1% in the June quarter, with coal alone surging 31 percent as the Russia-Ukraine conflict and bad weather disrupted global supplies.
That left export prices up almost 39 percent for the year to June, delivering a huge windfall to mining profits and the government’s tax take.
Chalmers is due to release his first budget in October.