Jim Chalmers has warned there is no guarantee Australia’s economy is heading for a soft landing after new data showed growth would be going backwards were it not for population increase and infrastructure spending.
In an interview with Guardian Australia’s politics podcast to be released on Saturday, the treasurer says Australia sliding into recession as a consequence of the Reserve Bank hiking interest rates is not his “expectation” because “we’ve got a lot going for us”.
But asked whether the economy was on track for the soft landing forecast by Treasury, Chalmers issued a blunt warning: “It’s not assured, [that’s] the truth of it.
“Nothing in the forecasts, whether the Reserve Bank forecasts or the Treasury forecasts, is preordained.
“And I think it is true that the coming 12 months or so will be bumpy in the economy, and we know that the most important consequence of that is that people are feeling the squeeze.”
Soft landings happen when central banks raise interest rates sufficiently to curb inflation, but the economy avoids a recession.
Chalmers said the two most present risks to the current forecast were the slowing Chinese economy and a prolonged slump in household consumption as Australians absorbed the hit of rising rates.
“I don’t want to say that we’re hostage to [a slowing economy] in China, or, you know, the impact of these rate rises which are already in the system,” the treasurer said.
“But those two things will be the biggest determinants of whether or not we meet the forecasts from the Treasury or underperform or over perform against them.”
Chalmers said there was still a lot of turbulence in the global economic outlook but China’s slowdown was “the sharpest point of risk”.
“Everybody is watching very closely developments particularly in [China’s] property sector. but also their retail sector, their exports have been a bit weaker, their economy is slowing [and] they’ve got deflation, if you can believe it.”
In another sign of the government’s concerns about the domestic impact of China’s economic slowdown, the topic was raised during a meeting between Anthony Albanese and the Chinese premier, Li Qiang, in Jakarta on Thursday.
While this week’s national accounts showed Australia’s economy grew 2.1% through the 2022-23 financial year, the data also showed economic growth was negative for the second quarter in a row in per-capita terms, leading market pundits to note the country is in a per-capita recession.
The Australian Bureau of Statistics reported that household spending rose only 0.1% in the quarter, and the household saving-to-income ratio fell to its lowest level since the June quarter of 2008 as families battled high prices and higher borrowing costs.
During his meeting with the Chinese premier, Albanese highlighted that one in four Australian jobs depend on trade. The prime minister took the opportunity to push to end the remaining trade blockages with China including hefty tariffs on Australian wine.
Li sought to reassure Albanese about China’s economic prospects and pointed to the country’s rising middle class.
“We did raise the economy,” Albanese told reporters after the meeting. “Premier Li was positive about China’s economic outlook.”
Albanese added that it was “a considerable achievement of China that they have lifted up millions of people out of poverty over recent decades”, and confirmed he would fly to Beijing this year for a second meeting with China’s president, Xi Jinping.
The talks came as Philip Lowe used his final public comments as governor of the Reserve Bank to say monetary policy was a “powerful instrument” but it had limitations and its effects were “felt unevenly across the community”.
Lowe said fiscal policy – run by governments – could “provide a stronger helping hand” but that required “rethinking of the existing policy architecture”.
That could include creating an independent body with “limited control over some fiscal instruments”.
Hear the full interview with Jim Chalmers on Guardian Australia’s politics podcast on Saturday
Additional reporting by Daniel Hurst and Peter Hannam
