Chalmers shuts down Australia’s worst fears

Treasurer Jim Chalmers has shut down fears of a recession following an ASX bloodbath where more than $100bn was wiped off the stockmarket.

On Monday, Australian markets took a costly dive of 3.7 per cent in what was the biggest one-day drop post-Covid.

By Tuesday, the markets steadied, gaining 0.41 per cent on Tuesday.

However, asked whether this was an early sign Australia was on the “brink of a recession,” Dr Chalmers said it was not something the government was “anticipating”.

“We’re not anticipating our economy will go backwards. It’s not the expectation of the Treasury or the Reserve Bank,” he told ABC’s RN.

“It’s not our anticipation that we will see a recession here, but there is a lot of global economic uncertainty, and that’s why it’s so important that we’ve taken the right decisions in our budgets for the right reasons.”

Latest GDP figures show real GDP grew by 0.2 per cent in the March 2024 quarter, with the Australian Bureau of Statistics set to release its next lot of data on September 4.

Dr Chalmers added that while the economy and stockmarket “are related,” they weren’t “the same thing”.

“The way that the Reserve Bank forecasts and accounts for our cost-of-living help is the same way that the Treasury accounts for that, and the point that’s been lost since yesterday’s decision is that the Reserve Bank’s near-term inflation forecasts are better, not worse, and that’s because of the design of our cost-of-living policies,” he said.

Speaking on Tuesday, Reserve Bank governor Michele Bullock also said she didn’t believe Australia was headed for a recession and maintained the bank was still on a “narrow path” in which it was trying to curb inflation while still growing the economy.

“Are we heading for a recession? I don’t believe so, and the board doesn’t believe so, because we still believe that we’re on that narrow path,” she said.

Her comments came after the RBA chose to hold the cash rate at 4.35 per cent on Tuesday, with Ms Bullock dashing hopes of a “near-term reduction” due to sticky inflation.

While she didn’t rule out the possibility of a future rate hike, RBA forecasting released in the August Statement of Monetary Policy reported a slightly extended timeline in which inflation would ease, tipping inflation to drop to 2.8 per cent by June 2025.

Speaking on Wednesday, Dr Chalmers denied this was due to government spending and said policies like the Commonwealth’s $300 energy bill rebate and rental assistance would help lower the consumer price index.

However, the analysis also tipped headline inflation to increase once the policies were removed, with the CPI forecast to increase from 2.8 per cent (June 2025) to 3.7 per cent (December 2025) once the rebates finish.

“Budget spending is not the primary determinant of prices in the economy, but we can be helpful – and we are being helpful – with the design of our cost-of-living policies which help us get back to targets sooner,” Dr Chalmers said.

“I think it’s hard to sustain an argument that the economy is running too hot, or that people have too much to spare cash, given all of the data and all of the feedback that we get, which shows that’s not the case.”

Deputy Opposition Leader Sussan Ley used Ms Bullock’s cash rate warning to take a shot at the government and said it was proof of Mr Albanese’s “failure to put in place a proper economic plan”.

She said a Coalition government would “cut red tape” for businesses and have a “back-to-basics economic plan”.

“Because wasteful spending by this government is adding to inflation and helping to create the problem and Michele Bullock has actually spelled that out,” she said.

“So with $315 billion of extra spending since Anthony Albanese became prime minister, you know, no wonder we’ve got the two arms of economic policy working against each other.”

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