Treasurer reveals forecasts being downgraded ahead of December budget update

Treasurer Jim Chalmers has revealed that his officials are downgrading economic forecasts ahead of the mid-year budget update in December. The revised outlook shows slower growth and higher unemployment, according to The Guardian.

The change sits awkwardly with what Chalmers said only recently. In a speech last week, he said the economy would be "a bit better" in a year's time. He has also told a Sydney economic forum that higher interest rates and higher inflation are likely to mean softer growth and slightly higher unemployment.

Oil is a large part of the picture. The global benchmark oil price rose to US$113 as the Middle East conflict spread, within sight of its April high of nearly US$120. Motorists are paying 60 cents more per litre for petrol than they were before the US and Israel attacked Iran.

The outlook could get worse. The New York Times has reported that the US and Israel have drawn up plans to restart attacks on Iran after the upcoming American midterm elections. Westpac analysts have also sketched an "escalation" scenario in which oil climbs towards US$150.

Interest rates are the other pressure point. Australia faces a possible fifth interest rate hike on 3 November. The Reserve Bank's Andrew Hauser, speaking for the central bank, described high inflation, low growth and rising unemployment together as a central banker's "nightmare".

Chalmers told Politico that pressures on people were very substantial and that they keep him awake at night. He said the government could help with cost-of-living measures and manage the budget responsibly.