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MNI BRIEF: Aussie Budget To Cut Growth Outlook, Deficit Lower

MNI (Perth)

The Australian Treasury will downgrade its growth outlook when its releases its Budget on Oct 25, signalling a much smaller deficit than forecast by the previous government in March thanks to high commodity prices and the strong jobs market.

Growth will be trimmed to 3.25% from 3.5% for the 2022-23 fiscal year, while the growth forecast for 2023-24 will be cut to 1.­­­5% from 2.5% as higher interest rates and inflation sap household spending, according to draft figures from the Treasury. (See MNI INSIGHT: RBA Watches Calmly As Red-Hot Housing Cools)

The Budget will forecast inflation to peak at 7.75% in the December quarter, similarly to the Reserve Bank of Australia. The forecast for inflation in 2022-23 will be raised to 5.75% from 5.5% in July when the Treasurer delivered an update, while next fiscal year's forecast will lifted to 3.5% from 2.75% - above the RBA 2-3% inflation target. The RBA is expected to lift rates by 25bps when it meets on Nov 1.

The deficit for 2022-23 is estimated by economists to be around AUD30 billion lower than the Pre-election Fiscal and Economic Outlook in March that forecast a shortfall of AUD79.8 billion. An additional AUD100 billion of revenue over the forecast period thanks to high commodity prices is expected to deliver lower-than-expected deficits over the next two years. However, deficits are then set to rise due to the rising cost of the National Disability Insurance Scheme.

Robert covers RBA and RBNZ policy and the economy for MNI in Australia.
Robert covers RBA and RBNZ policy and the economy for MNI in Australia.

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