Treasurer Jim Chalmers Eases Recession Fears, Rejects Claims Of Government Spending Fueling Inflation
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Treasurer Jim Chalmers has denied that Australia is on the brink of recession, following a huge global selling of stocks on Monday, erasing more than AU$100 billion from the share market.
The markets gained 0.41%, on Tuesday, after nosediving to 3.7%, on Monday, the worst single-day drop, since the onset of Covid in May 2020.
Chalmers rejected the claims that the market crash was an early sign of a recession, even as he acknowledged that there was uncertainty regarding the global economy, while denying the rumor that the government spending was adding to the inflation rate.
"We're not anticipating our economy will go backwards. It's not the expectation of the Treasury or the Reserve Bank," Chalmers told ABC's RN, News.com reported.
"It's not our anticipation that we will see a recession here, but there is a lot of global economic uncertainty, and that's why it's so important that we've taken the right decisions in our budgets for the right reasons," he added.
The Reserve Bank of Australia board that met Tuesday kept the cash rate at 4.35%, and dashed any hope of a "near-term" cut due to persistent inflation.
Reserve Bank governor Michele Bullock, too, denied that Australia was on the brink of recession, though she admitted that inflation was growing.
"Are we heading for a recession? I don't believe so, and the board doesn't believe so, because we still believe that we're on that narrow path," Bullock said after the board's meeting.
The RBA forecast inflation to drop to 2.8% by June 2025.
Denying that government spending was boosting inflation, Chalmers said the Commonwealth's AU$300 energy bill rebate and rental assistance would bring down the Consumer Price Index (CPI).
However, RBA's forecast on headline inflation indicated that CPI will rise, as the policies and rebates ended, reported The Nightly.
Appearing before the Senate committee on the cost-of-living on Wednesday, RBA's chief economist Sarah Hunter cast doubt that the government's AU$300 power bill was helping to curb inflation. She also pointed out that the RBA was looking for "softer growth" in public spending before deciding on rate cut.
"We're looking at the latest announcements coming out from the various State Budgets, from the Federal Budget, and we see coming through the data as well — how progressing on some of the big infrastructure that's happening," Hunter said. "When we look at the totality, what we see is the economy, at the moment, the pace of growth is very soft — the March quarter data was very soft, just 0.1 points of the GDP."
The RBA's updated predictions expects public demand to increase by 4.3% up to December 2024, which was higher than the previous forecast of 1.5%.
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