Jim Chalmers has revealed December’s mid-year budget update will project weaker growth and higher unemployment, as economists warn of a difficult six months ahead for the Australian economy. Two days after a senior Reserve Bank official foreshadowed the potential for another interest rate hike in under two weeks’ time, the treasurer in a speech on Friday morning will say “higher inflation is putting people under pressure, tighter monetary policy is weighing on domestic activity, and we can see that in the softening of the labour market”. Australian households are deeply pessimistic about the outlook, and Jonathan Kearns, the chief economist at Challenger, said “things have to get worse before they get better”. week showed unemployment reached 4.7% in September, the highest in nearly five years.
Despite this, financial markets on Thursday lifted the probability of a Melbourne Cup day rate hike to nearly 60%, according to ANZ. Kearns said the full impact of this year’s four interest rate hikes were yet to fully flow through to the economy – and that was before the prospect of a fifth. With little end in sight for the Middle East conflict, high fuel costs could also be a pain for motorists through the festive season and summer holidays.
Sally Auld, NAB’s chief economist, agreed that “the next six to nine months will be pretty challenging”. The RBA is facing an inflation challenge that’s worse than they thought it would be as recently as August,” Auld said. By this time next year, however, the economy should be sailing in smoother waters.
But Kearns said Chalmers’ policy options were limited for now, as any additional cost-of-living relief threatened to exacerbate the inflation challenge.
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