Australian Treasurer Jim Chalmers has confirmed that the upcoming mid-year budget update in December will project weaker economic growth and a rise in unemployment. Speaking on Friday morning at the Citi A50 Economic Forum in Sydney, according to speech extracts reviewed by Reuters and The Guardian, Chalmers pointed to stubborn inflation and tighter monetary policy as the primary drivers of the domestic slowdown. “Higher inflation is putting people under pressure, tighter monetary policy is weighing on domestic activity and we can see that in the softening of the labour market,” Chalmers said.
The revised Treasury forecasts arrive just days after Reserve Bank of Australia (RBA) officials signaled that another interest rate increase remains under serious consideration. Markets have priced in a high probability of a rate hike as underlying inflation lingers at 3.6% and the official cash rate sits at 4.6%. The national unemployment rate reached 4.7% in September, a five-year high that outpaced earlier central bank projections. Challenger chief economist Jonathan Kearns noted that the full impact of previous rate hikes has not yet fully filtered through to households, warning that the jobless rate will climb further.
Diverging Realities in Business Investment and Consumer Pressures
While consumer sentiment remains deeply pessimistic and home prices face a projected peak-to-trough decline of 13.5% according to ANZ economists, business investment is outperforming earlier expectations. Jim Chalmers told investors in Sydney that business investment is growing at more than double the rate forecast in the May budget, expanding past 5% this financial year and delivering roughly $50 billion in extra investment. ABC News reported that international investors continue to view Australia as a stable destination despite domestic economic headwinds.
NAB chief economist Sally Auld described the upcoming six to nine months as a challenging period for the broader economy as the RBA grapples with persistent price pressures. High fuel costs driven by ongoing conflicts in the Middle East add further strain to household budgets heading into the summer holidays. At the same time, the federal government faces limited policy options, as providing immediate cost-of-living relief risks fueling inflation, while pulling back government spending risks worsening unemployment.
Frequently Asked Questions About Australia’s Economic Outlook
When will the mid-year budget update be released?
The federal government will release the mid-year economic and fiscal outlook in December, at which point Treasury will formally publish its updated growth and unemployment forecasts.
What is the current unemployment rate in Australia?
The national unemployment rate hit 4.7% in September, marking the highest level recorded in nearly five years according to official labor force data.
How much are business investments expected to grow this financial year?
Treasury expects business investment to grow faster than 5%, doubling its previous May forecast and injecting an extra $50 billion into the economy.
What are financial markets predicting for interest rates?
Financial markets have priced in roughly a 60% to 64% probability that the Reserve Bank of Australia will raise interest rates again at its upcoming board meeting.