Treasurer Jim Chalmers said the global economy was in a “difficult and dangerous place” – with slowing global growth, rampant inflation, falling real wages, and extreme uncertainty.
“These challenges are intensifying, not dissipating, and Australia is not spared from this darker and more dangerous global outlook,” he said.
The largest downgrades were in the Eurozone, with a recession now on the cards in Russian gas-reliant Germany. The US is expected to eke out 0.5 per cent growth next year, while the United Kingdom will stall or contract.
“Australia [has] somewhat stronger growth momentum currently than Europe and the United States,” the OECD said. “But that is projected to wane over the coming quarters, in part due to softer external demand.”
Ratings agency S&P also revised down its 2023 Australian economic outlook on Monday, slashing expected growth in gross domestic product by a full 1 percentage point to 1.8 per cent for the year due to a sharp upward revision in the outlook for the official interest rate to 3.1 per cent by year’s end.
Anthony Walker, director of sovereign ratings at S&P, said higher interest rates would “narrow” Australia’s servicing costs headroom within the AAA rating band, but despite some headwinds there was plenty of wiggle room.
“Which means that we don’t expect the rating to change at this point,” Mr Walker said, adding the next major trigger point for Australia rating would be Labor’s first federal budget next month.
HSBC Australian chief economist Paul Bloxham said while there were headwinds, Australia would likely avoid a recession.
“Australia’s economy is doing well,” Mr Bloxham said. “Spending is strong, the unemployment rate remains low and the labour market is strong.
The OECD called for “short-term fiscal support” to cushion the most vulnerable households being hit by high-energy prices, but warned against moves that could put upward pressure on inflation.
Dr Chalmers said next month’s budget would be about providing cost-of-living relief without spurring inflation and forcing interest rates even higher.
But with the Coalition’s temporary $6 billion halving of the fuel tax set to expire on Wednesday night, the Treasurer pushed back against calls for the relief to be extended for a further three months at a cost of $3 billion.
After slumping about 20 per cent from July peaks, the national average petrol price edged 10.4¢ higher last week to $1.73 a litre, the largest lift in more than 18 weeks after hitting a nine-month low the week before.
The removal of the fuel tax cut will add about 22¢ a litre at the bowser.
But fears of a global downturn pushed global oil prices down recently, which will help offset the hit to household budgets. Brent crude fell by $US4.31 ($6.6) or 4.8 per cent to $US86.15 a barrel on Friday