Treasurer Jim Chalmers is being warned not to use the budget to deliver cost-of-living handouts to address inflation fuelled by the war in Iran, with the International Monetary Fund fearful the world could be pushed into a recession if hostilities do not end soon. Source: The Age.
As the Reserve Bank’s deputy governor said central banks were facing an economic “nightmare” as surging oil prices hit shoppers and businesses, the IMF overnight said the war had upturned the world’s economy and increased inflation pressures that could take years to overcome.
While the Australian economy is this year expected to be one of the world’s strongest, it is also forecast to have some of the highest inflation, which would be exacerbated if Mr Chalmers uses the budget on May 12 to go on a spending spree without offsetting handouts with spending cuts.
The IMF has downgraded its outlook for the global economy, expecting it to expand by 3.1 per cent this year. That would be a drop from 2025 and well short of the 3.7 per cent average between 2000 and 2019.
If not for the war, the international fund said it would have upgraded its outlook but the combination of a crunch on the supply of key exports out of the Middle East and the associated lift in inflation will hurt world economic activity.
Such is the uncertainty over the outlook, the IMF cautioned that its forecasts were predicated on a quick resolution to the war. If the war continues, growth could slow to just 2 per cent, which would be the first global recession since the pandemic, while inflation would climb beyond 6 per cent.
At least 60 countries, including Ireland and Japan, have introduced cost-of-living relief to deal with the spike in fuel prices. The Albanese Government has halved fuel excise for three months, shaving 32 cents a litre off petrol prices at a cost of $2.5 billion to the federal budget.
But IMF chief economist Pierre-Olivier Gourinchas, who urged central banks to remain “vigilant” against any inflation breakout, said spending sprees would only add to their inflation problems.
Mr Chalmers said the cost of the war in the Middle East would weigh on the domestic and global economy for some time, with the issue central to next month’s budget.
FULL STORY
Don’t fuel war inflation: IMF warns Chalmers as recession risks grow (By Shane Wright, The Age)
