Economic Outlook
The Australian government has released its 2023-24 budget, outlining its plans for managing the economy in the coming fiscal year. The budget forecasts subdued global economic growth, with the International Monetary Fund (IMF) projecting a slowdown from 3.4% in 2022 to 2.9% in 2023. This slowdown is expected to weigh on Australia’s trade and investment prospects.
Inflation Pressures
The budget also acknowledges persistent inflationary pressures, both domestically and globally. The Reserve Bank of Australia (RBA) has raised interest rates multiple times in recent months to tame inflation, which reached a 32-year high of 7.8% in the September quarter. The budget expects inflation to remain elevated in the near term before gradually moderating over the forecast period.
Revenue Expectations
The subdued global economic outlook and inflationary pressures have dampened revenue expectations in the Australian budget. The government has revised down its forecast for tax revenue growth in 2023-24, from 5.8% to 4.3%. This reflects a slowdown in economic activity, particularly in the mining sector.
Key Economic Assumptions
The budget outlines the key economic assumptions underpinning its forecasts. These assumptions include:
- Global economic growth of 2.9% in 2023 and 3.1% in 2024
- Inflation of 4.75% in 2023-24, moderating to 3.5% in 2024-25
- Unemployment rate of 3.5% in 2023-24, rising to 3.75% in 2024-25
- Australian dollar exchange rate of US$0.68 in 2023-24
Outlook for Growth
Despite the subdued global outlook, the Australian government remains optimistic about the economy’s medium-term prospects. The budget projects real GDP growth of 3.25% in 2023-24 and 3% in 2024-25. This growth will be supported by strong domestic demand, particularly in the services sector.
Kind regards E. Thompson