07 Jun Treasurer maintains growth view despite fresh rate hike
Treasurer Jim Chalmers has sought to allay concerns of a recession in the wake of a 12th interest rate hike.
The 25 basis point increase brought the cash rate to 4.1 per cent and in total the bank has delivered 400 basis points of rate hikes since May last year.
But Dr Chalmers said neither Treasury nor the Reserve Bank were forecasting a recession.
Asked if Australia was in danger of falling off its narrow path to a soft landing, he said he still expects the economy to grow but more slowly.
“We’ve been upfront that we expect a substantial slide in the economy, over the next 12 to 18 months, and that is the inevitable consequence of higher interest rates while at the same time as the global economy is a precarious place,” Dr Chalmers told reporters in Canberra.
He flagged weakening spending numbers, easing construction figures and the first signs of cooling in the labour market as indications the economy was starting to lose steam.
But some observers warn the latest interest rate hike has put the recession-free landing at risk.
Commonwealth Bank economist Gareth Aird said the chances of “keeping the economy on an even keel” as the RBA returned inflation to target had been diminished.
“The risk of a hard landing for the economy has grown today,” he wrote in a note.
He said the tightening cycle had been “incredibly aggressive” and there would be more pain to come for borrowers.
“Mortgage repayments will rise to a record high as a share of household income as the big number of ultra-low fixed rate loans continue to roll-off over the year.”
The treasurer said the national accounts, due on Wednesday, would reveal more about the state of the economy.
Economists are anticipating a growth slowdown in the March quarter but clues contained in a string of data releases suggest it may be stronger than first envisioned.
Net exports came in stronger than expected but are still tipped to take about 0.2 percentage points off GDP.
Government finance data, also released on Tuesday, show total government spending lifting 0.6 per cent over the March quarter and adding about 0.2 percentage points to growth.
Consumer confidence as measured by ANZ and Roy Morgan each week also showed consumers remained down in the dumps, with the index returning a below-80 result for the 14th week in a row.
The index edged 0.4 points lower, with confidence about future financial conditions sinking to its lowest point since the COVID-19 outbreak in March 2020.
Confidence among mortgage holders and renters has been trending lower than for those who own their homes outright but last week homeowner sentiment fell 4.6 points.
For renters, confidence improved 3.2 points, and one point for those paying off their homes.
Poppy Johnston and Andrew Brown
(Australian Associated Press)