Treasurer Jim Chalmers has revealed that Treasury is reworking its economic forecasts ahead of the December mid-year budget update, with a Friday morning speech set to warn that higher inflation and tighter monetary policy are weighing on growth and jobs.
“Treasury is in the process of revising all the numbers for the mid-year update,” Chalmers said. “Higher interest rates and higher inflation are likely to mean softer growth and slightly higher unemployment.” Jobs data released last week showed unemployment at 4.7 percent in September, the highest level in nearly five years.
Markets price another hike
Financial markets lifted the probability of such a move to roughly 60 percent on Thursday, according to ANZ.
Jonathan Kearns, chief economist at Challenger, said the full effect of this year’s four rate rises has yet to flow through the economy. “Things have to get worse before they get better,” he said. “The unemployment rate will increase further from here, and we are yet to see the full decline in housing prices.” Kearns added that unemployment could reach 5 percent, a threshold he called difficult for the government, and said policy options are limited because extra cost-of-living relief risks worsening inflation.
Housing and household strain
ANZ expects capital city home prices to fall a record 13.5 percent peak to trough, with some ground not regained until 2028 — the same year as the next federal election.
Sally Auld, chief economist at NAB, said the coming months will test the economy. “The next six to nine months will be pretty challenging,” she said. “Growth needs to slow.” She added that the Reserve Bank is facing an inflation challenge worse than it expected as recently as August.
Source: Treasury
