Jim Chalmers to Slash Growth Forecasts as Oil Hits US$113

Australian Treasurer Jim Chalmers will lower the nation's economic forecasts in the December mid-year budget update. The change reflects a weakening outlook that includes slower growth and higher unemployment. Chalmers acknowledged on Friday that Treasury officials are adjusting their numbers downward. This follows a speech last week where he suggested the economy would be slightly better in a year.

The primary cause is a surge in global energy prices. The overnight global benchmark oil price rose to US$113 per barrel. This level is close to the nearly US$120 peak seen in April. The increase stems from a widening conflict in the Middle East after the US and Israel attacked Iran. Australian drivers are now paying 60 cents more per litre than before those strikes.

The cost impact is visible at the pump. Filling a 60-litre tank now costs $36 more than in February. For a family that refuels weekly, this adds $144 to the monthly bill. These rising expenses are straining household budgets just as the government prepares to present its updated fiscal plans.

Risks remain high for the energy market. The New York Times reported that the US and Israel have drawn up plans to resume attacks on Iran after American midterm elections. Westpac analysts have outlined a scenario where oil prices reach US$150. The International Monetary Fund issued similar warnings earlier this month. Such an outcome would significantly affect inflation and interest rates.

The Reserve Bank may raise rates for the fifth time on 3 November. The decision comes as the global economy loses a key support pillar. Heavy spending on artificial intelligence has masked other weaknesses, but investors are now concerned about rising corporate debt. This anxiety triggered a steep sell-off on Wall Street overnight. Community opposition to datacentre construction may also slow investment, adding to short-term economic stress.

Reserve Bank Governor Andrew Hauser described the current mix of high inflation, low growth, and rising unemployment as a central banker's nightmare. Chalmers faces a difficult political position as an increasingly unpopular treasurer. He told Politico that the pressures on people are substantial and keep him awake at night. He noted that some causes are outside Canberra's control, while others involve government policy choices.

Chalmers stated that the government is hostage to decisions made in Washington, Tehran, and Eastern Europe. Two ongoing wars are pushing up global inflation and weighing on growth. Domestic factors are also challenging, as high government spending works against inflation control. Productivity growth is slow, meaning the economy reaches its speed limit sooner. Chalmers has limited options to ease voter discontent without incurring new costs.

The government could cut the fuel excise tax to lower petrol prices, but this would reduce the Reserve Bank's ability to fight inflation. Alternatively, Labor could announce large spending cuts in the December update. This would help the central bank but could push unemployment higher in an already weak economy. Hauser calls this a world of hard choices, where fixing one problem often worsens another.