The UK and US are heading for recession and China is facing a sharp economic slowdown which will have ramifications for Australia’s economy and shape next week’s budget, Treasurer Jim Chalmers warns.
Updated forecasts on international economic growth ahead of the October 25 budget show a steep downgrading of forecasts over the next couple of years for several of Australia’s major trading partners amid global energy price shocks, the war in Ukraine and ongoing pandemic restrictions in China.
Treasurer Jim Chalmers has unveiled new forecasts for global economic growth which show a deteriorating international outlook.Credit:Alex Ellinghausen
Fresh from his Washington meetings with the International Monetary Fund, central bankers and his overseas counterparts, Chalmers said the global economy was on “an increasingly perilous path”.
“The budget will confirm the stark deterioration in the outlook for global growth and in several major economies, with some at risk of falling into recession,” he said.
The new forecasts, which are not expected to change again before the October 25 budget, show GDP growth for 2023 is expected to be in some cases more than 2 percentage points lower than was forecast in the March budget.
Growth in the US for 2023 is predicted to be 1.75 per cent this year – 1.5 percentage points lower than expected seven months ago following two quarters of negative growth – and falling to 1 per cent in 2023. Growth in Europe has been downgraded from 2.25 per cent to 0.5 per cent in 2023, while the UK’s forecast for next year has plunged from 2 per cent growth to a contraction of 0.25 per cent.
Growth in China has been downgraded from 5.25 per cent to 4.5 per cent for 2023, and globally the GDP forecast for next year has dropped a percentage point to 2.75 per cent.
Chalmers said Australia had benefited from a tight labour market and good demand for exports, but the country “will not be spared from the consequences of a global slowdown”.
“A weaker global economy with higher inflation and heightened risks makes it even more important we deliver a responsible budget here at home, which is exactly what we will do next week,” he said.
A KPMG report on Australia’s economic outlook also pointed to rapidly deteriorating global conditions as an ongoing risk, with few signs China’s COVID restrictions would change, and recessions “now likely in many countries”.
The KPMG report forecasts the Australian economy will grow by 4.2 per cent in 2022 before easing to 2.2 per cent growth in 2023, as the effects of higher inflation and rising interest rates bite.
Inflation in Australia is expected to peak at 7.75 per cent by Christmas, easing to 4.25 per cent by the end of 2023.
Finance Minister Katy Gallagher said the government’s budget should not add to inflation as spending cuts, delays in some programs and a reallocation of other funds would help shift billions of dollars to funding Labor’s election promises and keep spending down.
“There is an additional spend, but it’s modest,” she said.
Next week’s budget will include $9.66 billion in infrastructure spending across the country. Gallagher said some of the previous government’s grant programs would be cut and other infrastructure spending would be delayed to make room for some of those new commitments.
“This is reshaping the infrastructure program as it sits currently in the budget with a small increase spend, but we’re very confident that that will not add to inflation,” she said.
“I’m always looking for areas where we can find some sensible savings not a slash and burn or doing anything like that, but where we can make sure that every dollar spent is going where it’s needed.”
Another program the government has committed to funding is fully subsidised video psychiatry services for rural Australians, at a cost of $47.7 million over the next four years. It will let psychiatrists bulk bill patients for video consults again after the measure ended in December.
Infrastructure Minister Catherine King told ABC’s Insiders that regional grants programs, including the $2 billion regional accelerator fund, the building better regions fund and the community development grants were being closely audited.
“Some of the things that the previous government funded we’ll fund, some of them we won’t,” she said on Sunday.
Opposition infrastructure spokeswoman Bridget McKenzie said the Coalition was disappointed by the lack of clarity around spending on regional programs.
“The feedback from travelling across the country shows that hundreds of local communities are deeply concerned that their important projects, which they have applied for in good faith, were being branded as ‘waste’,” she said.
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