Australia’s economy is on track for soft landing, treasurer says

AUSTRALIA’S government is “cautiously confident” it can bring the economy in for a soft landing despite anaemic growth in the first quarter and stubbornly strong inflation, Treasurer Jim Chalmers said.

The government’s budget last month anticipated the weakness – just 0.1 per cent growth – and was crafted accordingly, Chalmers said in excerpts of a speech to be delivered on Wednesday (Jun 12). He highlighted rising wages and pending tax cuts that will underpin household spending, which has slowed sharply in response to higher interest rates.

“This is what a soft landing on a narrow runway looks like,” Chalmers will tell the Morgan Stanley Australia Summit 2024. “This is the soft landing we are cautiously confident of, but not complacent about.”

Australia’s economy has weakened in response to the Reserve Bank of Australia’s most aggressive tightening campaign in a generation, when it raised rates 13 times. It has since held borrowing costs at 4.35 per cent as inflation takes longer than expected to return to target and policymakers aim to avoid easing too early.

“The task of taming inflation has halted growth in Europe, raised unemployment in Canada to its highest level in two years, and progress on inflation has slowed in the US,” Chalmers said. “Achieving a soft landing in this complicated environment is a focus of our budget, and it shaped our fiscal strategy.”

After recording two surpluses, the government forecast last month that the budget would slip back into the red as unemployment rises and international commodity prices fall back, curbing tax revenue. BLOOMBERG