Budget clouded by global wars and weak economic growth

Poppy Johnston |

The war is Gaza spreading into the wider region would risk further spikes in commodity prices.
The war is Gaza spreading into the wider region would risk further spikes in commodity prices.

Fog blanketing the Australian economy is unlikely to lift this year, with a weak growth outlook and volatile global conditions setting a complex scene for the federal budget.

Australia’s economic growth is expected to rise 1.5 per cent in 2024 and two per cent in 2025, the International Monetary Fund said in its latest global assessment.

Those forecasts are below the 2.5 per cent trend rate for the Australian economy.

Global conflict impacts federal budget
A weak growth outlook and volatile global conditions set a complex scene for the federal budget. (James Ross/AAP PHOTOS)

Forward-looking economic indicators released on Wednesday by Westpac also pointed to ongoing weakness in the economy for the rest of 2024. 

The leading index, which indicates the likely pace of economic activity relative to trend three to nine months in the future, recorded another negative growth rate in March.

Westpac senior economist Matthew Hassan said consistently weak results signalled “sub-trend growth performance continuing throughout 2024”.

Treasurer Jim Chalmers, who is due to meet his G20 counterparts for in Washington this week, said the weakening growth outlook was one of many economic challenges for his third budget.

Global conditions were also worrying and Treasury officials had raised concerns about conflicts in Europe and the Middle East triggering volatility in oil markets and elsewhere, he told ABC radio.

“A big conflict in Europe, Western Europe, combined with what we’re seeing in the Middle East – obviously that makes investors and other actors in the global economy a bit jumpy,” the treasurer said.

IMF global economic growth forecast
The International Monetary Fund has slightly upgraded its global economic growth forecast. (Dean Lewins/AAP PHOTOS)

China’s troubled property market was also a concern.

“Given the structure of our economy and our trading relationships with China, we’re not immune from the way that the Chinese economy has slowed considerably,” Dr Chalmers said.

The IMF economic forecasts released overnight had the Chinese economy slowing from 5.2 per cent in 2023 to 4.6 per cent in 2024 and 4.1 per cent in 2025.

Global economic growth forecast has been slightly upgraded, and is now tipped to increase 3.2 per cent, 0.1 percentage points higher than in the previous update in January.

IMF global economic growth forecast
The IMF expects the Chinese economy to slow from 5.2 per cent in 2023 to 4.6 per cent in 2024. (Flavio Brancaleone/AAP PHOTOS)

“Most indicators continue to point to a soft landing”, with global growth steady and “inflation slowing almost as quickly as it rose”, IMF chief economist Pierre-Olivier Gourinchas said.

Yet he highlighted stalled progress towards inflation targets as a risk factor as stubbornly high services inflation, the possibility of further trade restrictions on Chinese exports, and rising oil prices provide reasons to remain vigilant.

The possibility of the conflict between Israel and Hamas in Gaza spreading into the wider region is a risk for further commodity price spikes that may fuel inflation, along with attacks in the Red Sea and the ongoing war in Ukraine.

“Bringing inflation back to target should remain the priority,” Mr Gourinchas said. 

“While inflation trends are encouraging, we are not there yet.”

AAP