Australian government forecasts ballooning debt

Headlines via Reuters:

• Australia sees 2024/25 budget deficit at A$26.9 bln vs A$28.3 bln projected in May
• Australia sees 2025/26 budget deficit at A$46.9 bln, 2026/27 A$38.4 bln
• Australia sees GDP growth at 1.75% in 2024/25, 2.25% in 2025/26
• Australia sees unemployment rate at 4.5% in 2024/25, through to 2026/27
• Australia government sees net debt at A$1.16 trillion in 2027/28, or 36.7% of GDP

More from the report, in brief:

• Budget Deficit Outlook:

  • 2024/25 deficit revised to A$26.9 billion, improved from A$28.3 billion projected in May.
  • Deficits expected to worsen: A$46.9 billion in 2025/26 and A$38.4 billion in 2026/27.
  • Total deficits over three years to 2027/28 now projected at A$117 billion (A$23 billion worse than May).

• GDP and Economic Growth:

  • GDP growth forecast cut to 1.75% for 2024/25 (from 2.0% in May).
  • Growth to recover to 2.25% in 2025/26.

• Unemployment Rate:

  • Expected to stay steady at 4.5% from 2024/25 through 2026/27.

• Net Debt:

  • Projected to rise to A$1.16 trillion by 2027/28, or 36.7% of GDP.
  • Up from an expected A$940 billion this year.

• Key Drivers of Deficits:

  • Increased spending on health, cost-of-living relief, and veterans’ care.
  • Automatic spending increases in pensions, Medicare, and medicines.

• Economic Challenges:

  • Public spending has prevented recession amid weak private sector growth.
  • Commodity export revenues downgraded due to sluggish demand in China, affecting iron ore prices.

• Labor Market and Wages:

  • Wage growth downgraded to 3.0%, countering government claims of stronger pay growth.

• RBA Policy:

  • Economic slowdown prompted the Reserve Bank of Australia to signal possible rate cuts, holding rates steady at 4.35% this year.

Australian Treasurer Chalmers.

The indications from today’s release show its estimated that the budget will not return to surplus for at least a decade.

This article was written by Eamonn Sheridan at www.forexlive.com.