Growth forecasts will be downgraded in the ACT budget but increased Commonwealth spending in response to a slowing national economy is set to help the territory's bottom line.
Chief Minister Andrew Barr conceded the twin issues of persistent inflation and a slowing economy were a thorny problem.
"I think there's certainly an expectation that the economy will need a bit of stimulus, but in ways that don't fuel inflation," Mr Barr told the Sunday Canberra Times.
The ACT budget will be handed down in nine days, on June 25, with growth forecasts below usual trends.
"There are intersecting economic factors that are impacting on some of our forecasts. What has happened because of the relative weakness of the national economy is the Commonwealth spending has increased, so that does flow through our state final demand and [gross state product] forecasts," Mr Barr said.
"So, in summary, Canberra's probably one of the best cities to be in when there's a national economic downturn. We do tend to be shielded a bit from the worst of it."
Mr Barr said migration decisions would also bring down the territory's forecast population growth.
These federal government decisions would affect expectations for the territory's economy.
National accounts figures released earlier this month revealed Australia's economy grew by 0.1 per cent in the first three months of the year, a lower than expected level.
Gross domestic product figures released by the Australian Bureau of Statistics revealed annual growth of 1.1 per cent, the lowest annual rate since December 2020.
Higher interest rates, intended to tackle inflation, have worked to slow economic growth as mortgage holders cut back spending.
However, the national unemployment rate fell 0.1 percentage points to 4 per cent in May, meaning 39,700 jobs were added to the economy, Australian Bureau of Statistics figures showed.
Federal Treasurer Jim Chalmers this week told a Morgan Stanley summit the global economic situation was "fragile and complex".
"Moderating but lingering global inflation, higher interest rates, fragmenting supply chains and conflicts in Europe and the Middle East are creating significant uncertainty," Dr Chalmers said.
"The US is doing well but other economies are feeling the lagged impact of monetary policy tightening. Almost three-quarters of the OECD have recorded a negative quarter over the past year.
"Global factors were playing out in last week's Australian national accounts for March as well. The Treasury forecasts in the budget anticipated weak growth in our economy primarily because of higher interest rates, moderating but high inflation and global economic uncertainty - and that's what we saw."
Dr Chalmers has argued the weak economic growth, revealed in the national accounts, justified the program of Commonwealth spending outlined in May's federal budget.
"It would have been badly wrong to slash and burn in the budget when the economy is already soft and people are still hurting," Dr Chalmers said.
Last year's ACT budget forecast 3 per cent growth in gross state product in 2024-25, up from 2.25 per cent in 2023-24. But the figure was downgraded in the budget review to 2.75 per cent in 2024-25.
"Economic growth was stronger than expected in 2022-23, with Gross State Product (GSP) increasing by 4.3 per cent in 2022-23, compared to the 3.75 per cent estimate in the 2023-24 budget," the budget review said.
"In line with 2023-24 budget estimates, economic growth is forecast to moderate in 2023-24 as higher interest rates and cost-of-living pressures begin to dampen consumer spending, before gradually accelerating over the forward estimates period."
