Treasurer Jim Chalmers has cautioned of weak economic growth in Australia, terming it an “inevitable consequence” of global uncertainty, higher interest rates, and cost-of-living pressures.
In an address to the G20 Economic Ministers Forum in São Paulo, Brazil, Chalmers stated that GDP growth figures, due to be released by the Australian Bureau of Statistics (ABS) next week, are likely to be “quite weak”.
Earlier this year, the International Monetary Fund (IMF) had also warned of weak growth in Australia, forecasting 1.8 per cent year-on-year in 2023, and 1.4 per cent year-on-year in 2024.
Particularly, it noted faltering private consumption would “continue to put a drag on the economy, as households with mortgages bear the brunt of higher interest rates, amidst lower real wages and depleting savings.”
In his address, the Treasurer noted: “The soft landing we seek at home and in the global economy is assumed but not assured.
“Yes, global inflation has peaked, issues in the banking system have been well‑contained, and growth in some major economies like the United States has defied expectations, but since we last met, we’ve seen technical recessions confirmed in Japan and the United Kingdom, two good friends and two big and important economies.”
In February, economic data revealed both Japan and the UK slipped into recession at the end of last year, with Japan’s economy contracting at an annual rate of 0.4 per cent in October to December, following a contraction of 3.3 per cent in the previous quarter.
Meanwhile, the UK’s GDP fell 0.3 per cent in the final three months of 2023, following a 0.1 per cent contraction in the July-to-September period.
Chalmers observed that around a quarter of the G20 have recorded a recession or just narrowly avoided one in the last year, and this was before the lagged effect of the synchronised tightening of monetary policy was fully felt.
“Inflation remains our major concern but for most of us, the balance of risks in the economy has shifted, is shifting, or will shift before long from inflation to growth,” he said.
“Australia is neither immune from all of this nor complacent about any of this. We expect growth in next week’s December national accounts to be quite weak – the inevitable consequence of global uncertainty, higher interest rates, and cost-of-living pressures.”
Notably, inflation appeared to be staggering in the country, according to the latest monthly consumer price index (CPI) indicator from the ABS. It rose 3.4 per cent in the 12 months to January 2024, down from 4.3 per cent a month earlier.
The increase represented the lowest annual inflation since November 2021 and came in below market forecasts of a 3.6 per cent rise.
In light of these numbers, Chalmers agreed that inflation had moderated substantially since its 2022 peak and the recent monthly inflation figures were evidence that “inflation is moderating in welcome ways”.
“But we’d like it to moderate further and faster,” he added.
The Treasurer outlined three areas of action to address weak economic growth, namely cost-of-living relief that “takes the pressure off inflation rather than add to it”; repair of budgets, balance sheets, and supply chains; and reform that “prioritises the energy transformation, labour markets and human capital, data and digital technology”.
According to the Reserve Bank of Australia (RBA), economic growth is “expected to remain subdued in the near term as inflation and higher interest rates continue to weigh on demand”.
“The forecast for GDP growth is softer than three months ago, largely reflecting a weaker outlook for household consumption in the near term. From late 2024, growth is expected to pick up gradually as inflation declines and the pressures on household incomes ease,” the RBA said in a statement on monetary policy following its February meeting.
It forecast GDP growth in advanced economies to slow substantially, observing that in most G7 economies, private sector economists’ forecasts for growth for 2024 are “well below the average growth of the decade prior to the pandemic” although US growth is expected to slow only moderately.
