Smoke rises to the sky following an explosion in the Gaza Strip
The war is Gaza spreading into the wider region would risk further spikes in commodity prices. Image by AP PHOTO
  • economy, business and finance

Global economy ‘fragmenting and transforming’:Treasurer


April 17, 2024

Labor will place a “real emphasis on economic security” in the upcoming federal budget as the global economy is fragmenting, Jim Chalmers says.

The International Monetary Fund has slightly upgraded its global economic growth forecast but warned about progress on inflation off the back of conflicts in the Middle East and Europe.

The treasurer says the global economy has a “tricky balance of risks” as inflation still sticks around.

“In the budget, what you’ll see is a real premium on responsibility and these conditions, but also a real emphasis on economic security,” he told ABC’s RN on Wednesday.

“We’ve got supply chains, which are straining and we’ve got a global economy, which is fragmenting and transforming.”

Global growth 2024 is expected to rise by 3.2 per cent in the April world economic outlook, 0.1 percentage points higher than in the previous update in January.

While low by historical standards, the global growth forecasts for 2024 has been revised up 0.3 percentage points since October 2023. 

IMF global economic growth forecast
 The International Monetary Fund has slightly upgraded its global economic growth forecast. Image by Dean Lewins/AAP PHOTOS 

“Most indicators continue to point to a soft landing”, with global growth steady and “inflation slowing almost as quickly as it rose”, IMF chief economist Pierre-Olivier Gourinchas said.

Yet he highlighted stalled progress towards inflation targets as a risk factor as stubbornly high services inflation, the possibility of further trade restrictions on Chinese exports, and rising oil prices provide reasons to remain vigilant.

The possibility of the conflict between Israel and Hamas in Gaza spreading into the wider region is a risk to further commodity price spikes, along with attacks in the Red Sea and the ongoing war in Ukraine.

“Bringing inflation back to target should remain the priority,” Mr Gourinchas said. 

“While inflation trends are encouraging, we are not there yet.”

Dr Chalmers said inflation in Australia had eased “pretty substantially”.

“That won’t necessarily continue to come off in a perfectly straight line, but inflation is a fraction of what it was a couple of years ago when we came to office,” he said.

Other downside risks to the outlook include China’s troubled property sector, which could lead to ongoing economic weakness and pain for trading partners such as Australia. 

The IMF expects the Chinese economy to slow from 5.2 per cent in 2023 to 4.6 per cent in 2024 and 4.1 per cent in 2025.

IMF global economic growth forecast
 The IMF expects the Chinese economy to slow from 5.2 per cent in 2023 to 4.6 per cent in 2024. Image by Flavio Brancaleone/AAP PHOTOS 

Yet the financial institution views the risks to the global outlook as “broadly balanced”, with upside possibilities including inflation falling faster than expected as jobs market participation keeps growing, allowing central banks to start cutting interest rates sooner. 

Economic predictions for Australia are little changed from the previous update, with the IMF forecasting a 1.5 per cent rise in GDP in 2024 and two per cent in 2025.

In January, the nation’s economy is expected to expand 1.4 per cent in 2024 and 2.1 per cent in 2025.

The IMF forecasts inflation to be at 3.5 per cent in 2024 and back to three per cent – the top of the Reserve Bank of Australia’s target range – by 2025.

Australian Treasurer Jim Chalmers
 The global economy faces a complex set of challenges, Treasurer Jim Chalmers says. Image by Lukas Coch/AAP PHOTOS 

Dr Chalmers said challenges in China’s property sector and the threat of escalation of conflicts in the Middle East and Europe remained key risks to the global economic outlook. 

He is due to travel to Washington later this week for International Monetary Fund, World Bank and G20 finance minister spring meetings.

He said the government’s plan to fund manufacturing and clean technology projects would require “big significant investments” but that would only form a part of the total financing.

“My own perspective … is that we can’t ignore developments in the global economy,” the treasurer said.

The budget will be handed down on May 14.