Australia seems poised to avoid a recession amidst the looming clouds of a global trade war, according to new Treasury modelling. Jim Chalmers, the treasurer, acknowledges the “substantial” risks to economic growth posed by Donald Trump’s aggressive tariffs. Despite the turbulence seen on the stock market, Chalmers reassured the public, stating that Australia is in a favourable position to withstand potential economic storms ahead.
In light of fears surrounding a severe downturn in the US that could ripple through global economies, updated modelling indicated only a modest impact on Australia. Expected to reduce economic growth by a mere 0.1% in 2025 and add slight inflation pressure, Chalmers affirmed, “We expect more manageable impacts on the Australian economy.”
Comparatively, the US might see a 0.8% contraction by 2027, along with significant inflationary increases, while China faces a similar fate with a 0.6% economic contraction. Chalmers commented on the unwise nature of the tariff strategy: “This is one of the many reasons that we describe the tariff decision to be ill-considered and unwarranted.”
As the economic outlook remains unchanged since the pre-election budget, there’s a cautious sentiment among investors. With the Australian dollar briefly dropping below 60 US cents, analysts now foresee potential rate cuts by the Reserve Bank in response to economic changes driven by global trade tensions.
Although projections for the US economy look grim, experts like Warwick McKibbin from the ANU argue that Australia can weather the worst-case scenarios of a trade war relatively well. While vulnerable sectors, such as mining, may feel the strain, the country’s economic flexibility positions it favourably in comparison to others affected by the brewing trade conflict.
McKibbin’s analyses suggest that a trade war could take a slight toll on Australia’s growth in the near term but would allow for recovery relatively quickly. He advocates for maintaining open trade relations, emphasising, “It is better to focus on open and expanded trade with the other 80% of the world economy.” Preliminary modelling from KPMG, however, hints at a more considerable impact, illustrating the uncertainty that remains in predictions about the global economic landscape.
Australia appears set to evade recession amid a global trade war, bolstered by Treasury modelling that predicts only a slight economic impact. While fears of a US downturn grow, Chalmers assures that Australia is well-prepared. Despite concerns about some sectors, experts believe the country will navigate through economic turbulence effectively, emphasising the need for open global trade.
In conclusion, Australia is likely to avoid the recessionary pitfalls of a global trade war, as evidenced by Treasury’s modelling. Jim Chalmers remains realistic about existing challenges, yet reassures that the nation is better prepared than others to handle potential fallout. Though some sectors might be adversely affected, the overall resilience displayed suggests a bounce-back is on the horizon, emphasising the importance of open trade relations in these turbulent times.
Original Source: www.theguardian.com
