Treasurer Jim Chalmers confirms one of the worst economic forecasts in history
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The majority of us have gradually felt the effects of an economy that’s had ups and downs in recent years, but a forecast about its continuous spiral has officially been announced by Treasurer Jim Chalmers.
The Federal Treasurer emphasised that Australian households and the economy will take a hit, deeming inflation, interest rates, government debt, and the outlook for economic growth 'confronting'.
In his statement on Thursday, he revealed the economic struggle that he has alluded to.
'The headwinds our economy is facing - higher inflation at the top of that list, along with slowing global growth - are now reflected in the revised economic outcomes and forecasts,' Mr Chalmers told the Parliament according to an excerpt from his speech.
'This has cut half a percentage point from growth for the last financial year, for this financial year, and for next financial year.'
Australian households will take a hit. Source: Reuters
The latest figures show that the Gross Domestic Product only grew by 3.75 per cent in 2021-2022, instead of 4.25 per cent as estimated by the Treasury prior to the election.
The forecast for GDP growth in 2022-2023 has been revised from 3.5 per cent down to 3 per cent.
It’s expected to progress at a slower rate in 2023-2024, at 2 per cent, a concerning decrease from 2.5 per cent as initially predicted.
After the June quarter consumer price index came at a staggering 6.1 per cent, which is the highest rate in 21 years, Mr Chalmers told Australians that inflation would ‘get worse before it gets better – but it will get better.’
Compared to the rest of the world, Australia is outperforming several countries but it doesn’t negate the fact that inflation has still affected citizens greatly.
'Our high inflation is primarily but not exclusively global,' Mr Chalmers stated.
'It will subside but not overnight. The Australian economy is growing - but so are the challenges.'
'Some are home-grown, others come from around the world.'
Treasurer Jim Chalmers delivered his speech on Thursday. Source: The Guardian
The statement followed after the International Monetary Fund (IMF) downgraded its outlook for global growth and warned that the world may be on the brink of a recession if risks from high inflation and the Ukraine war aren’t acted upon immediately.
It added that the world growth has contracted–or turned negative–in the second quarter due to massive declines in economic activity in China and Russia.
'The world may soon be teetering on the edge of a global recession, only two years after the last one,' IMF Chief Economist Pierre-Olivier Gourinchas said during a news conference on Tuesday.
The Treasurer's statement isn’t centred on budget forecasts, as he's saving that for a new Labor budget in October, but he aims to give Australians a clue about what they can expect when it comes to the budget bottom line.
The new monthly financial statement for May released by the Department of Finance showed that the 2021-2022 underlying budget deficit is $33.4 billion.
Mr Chalmers detailed on Wednesday that the deficit had improved due to improved commodity prices and employment.
'But what I will explain is that the things that have been working for us in the budget are temporary, highly temporary, and some of the challenges are more enduring,' he stated.
Mr Chalmers also told the Parliament that the new Labor government isn’t accountable for the mess but it will take full responsibility for cleaning it up.
'We have it within us to stare down these threats, steer our way through this difficult period, and seize the opportunities of this new age.'
So why are interest rates rising when the cost of living is already getting so high?
The Reserve Bank’s job is to keep inflation under control. Unfortunately, interest rates are basically the only tool they can use.
If we take a look back, the forecast of the previous government was only 4.25 per cent. The interest rate is currently 6.1 per cent and expected to peak at 7.75 per cent. But can we trust this?
The RBA has an agreement with the government to keep inflation to 2-3 per cent each year which is why they have to increase interest rates. It’s expected this will take another two years to return to normal.
We recently covered how Mr. Chalmers promised that pensions would keep up with inflation. But with this economic downturn predicted, and inflation only being part of the wider problem, what can we expect?
So what is the government doing to help pensioners?
It seems this hasn’t been properly thought out yet. Focusses currently look at cutting childcare costs, increasing wages and managing electricity supply issues. Though, any improvements to the economy will have positive flow-on effects.
What are the key points?
If you are struggling, we wrote about food bank resources here. There’s nothing wrong with asking for help. In fact, more and more Aussies are relying on food aid.
What are your thoughts about the Treasurer’s forecast on higher inflation rates? Let us know in the comments!
The Federal Treasurer emphasised that Australian households and the economy will take a hit, deeming inflation, interest rates, government debt, and the outlook for economic growth 'confronting'.
In his statement on Thursday, he revealed the economic struggle that he has alluded to.
'The headwinds our economy is facing - higher inflation at the top of that list, along with slowing global growth - are now reflected in the revised economic outcomes and forecasts,' Mr Chalmers told the Parliament according to an excerpt from his speech.
'This has cut half a percentage point from growth for the last financial year, for this financial year, and for next financial year.'
Australian households will take a hit. Source: Reuters
The latest figures show that the Gross Domestic Product only grew by 3.75 per cent in 2021-2022, instead of 4.25 per cent as estimated by the Treasury prior to the election.
The forecast for GDP growth in 2022-2023 has been revised from 3.5 per cent down to 3 per cent.
It’s expected to progress at a slower rate in 2023-2024, at 2 per cent, a concerning decrease from 2.5 per cent as initially predicted.
After the June quarter consumer price index came at a staggering 6.1 per cent, which is the highest rate in 21 years, Mr Chalmers told Australians that inflation would ‘get worse before it gets better – but it will get better.’
Compared to the rest of the world, Australia is outperforming several countries but it doesn’t negate the fact that inflation has still affected citizens greatly.
'Our high inflation is primarily but not exclusively global,' Mr Chalmers stated.
'It will subside but not overnight. The Australian economy is growing - but so are the challenges.'
'Some are home-grown, others come from around the world.'
Treasurer Jim Chalmers delivered his speech on Thursday. Source: The Guardian
The statement followed after the International Monetary Fund (IMF) downgraded its outlook for global growth and warned that the world may be on the brink of a recession if risks from high inflation and the Ukraine war aren’t acted upon immediately.
It added that the world growth has contracted–or turned negative–in the second quarter due to massive declines in economic activity in China and Russia.
'The world may soon be teetering on the edge of a global recession, only two years after the last one,' IMF Chief Economist Pierre-Olivier Gourinchas said during a news conference on Tuesday.
The Treasurer's statement isn’t centred on budget forecasts, as he's saving that for a new Labor budget in October, but he aims to give Australians a clue about what they can expect when it comes to the budget bottom line.
The new monthly financial statement for May released by the Department of Finance showed that the 2021-2022 underlying budget deficit is $33.4 billion.
Mr Chalmers detailed on Wednesday that the deficit had improved due to improved commodity prices and employment.
'But what I will explain is that the things that have been working for us in the budget are temporary, highly temporary, and some of the challenges are more enduring,' he stated.
Mr Chalmers also told the Parliament that the new Labor government isn’t accountable for the mess but it will take full responsibility for cleaning it up.
'We have it within us to stare down these threats, steer our way through this difficult period, and seize the opportunities of this new age.'
So why are interest rates rising when the cost of living is already getting so high?
The Reserve Bank’s job is to keep inflation under control. Unfortunately, interest rates are basically the only tool they can use.
If we take a look back, the forecast of the previous government was only 4.25 per cent. The interest rate is currently 6.1 per cent and expected to peak at 7.75 per cent. But can we trust this?
The RBA has an agreement with the government to keep inflation to 2-3 per cent each year which is why they have to increase interest rates. It’s expected this will take another two years to return to normal.
We recently covered how Mr. Chalmers promised that pensions would keep up with inflation. But with this economic downturn predicted, and inflation only being part of the wider problem, what can we expect?
So what is the government doing to help pensioners?
It seems this hasn’t been properly thought out yet. Focusses currently look at cutting childcare costs, increasing wages and managing electricity supply issues. Though, any improvements to the economy will have positive flow-on effects.
What are the key points?
- Price rises aren’t expected to slow anytime soon and the cost of living will continue to rise for at least another year.
- Interest rates are expected to rise further. The Reserve Bank is working to try and get price increases under control.
- A recession is not expected in Australia.
If you are struggling, we wrote about food bank resources here. There’s nothing wrong with asking for help. In fact, more and more Aussies are relying on food aid.
What are your thoughts about the Treasurer’s forecast on higher inflation rates? Let us know in the comments!
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