Chalmers to cut growth forecasts as oil hits $113

Treasurer Jim Chalmers is preparing to lower Australia's economic growth forecast. Treasury officials are revising their projections downward ahead of the December mid-year budget update. The changes will reflect slower economic expansion and higher unemployment.

The shift follows a rapid deterioration in global market conditions. Last week, Chalmers described the coming year as 'a bit better.' By Friday, he acknowledged that the outlook had worsened. The primary driver is the widening conflict in the Middle East. The global benchmark oil price rose to US$113 a barrel overnight. This figure is close to the April peak of nearly US$120.

The rise in oil prices is directly impacting household budgets. Australian motorists are currently paying 60 cents more per litre than they did before the US and Israel attacked Iran. This increase adds $36 to the cost of filling a standard 60-litre tank. For a family that refuels every week, this represents an additional $144 in monthly expenses compared to February.

Analysts warn that costs could climb further. The New York Times reported that the US and Israel have drafted plans to resume attacks on Iran after the American midterm elections. Westpac analysts have modeled a scenario where oil prices reach US$150. This potential spike mirrors warnings issued by the International Monetary Fund earlier this month. Such a jump would pressure inflation and interest rates. A fifth rate rise is possible on 3 November.

Global financial markets are also showing signs of stress. Investors have grown uneasy about rising corporate debt tied to artificial intelligence infrastructure. This concern triggered a steep sell-off on Wall Street overnight. Community opposition to new datacenters may further slow investment. This adds to short-term economic stress as talk of a tech bubble intensifies.

Reserve Bank Governor Andrew Hauser called the current mix of high inflation and low growth a central banker's 'nightmare.' Chalmers told Politico that the pressures on people are 'very substantial.' He noted that the government is 'hostage' to decisions made in Washington, Tehran, and Eastern Europe. These foreign conflicts are pushing up global inflation and weighing on growth.

Chalmers faces difficult choices for the December budget. Cutting the fuel excise would lower petrol prices but make it harder for the Reserve Bank to control inflation. Announcing large spending cuts would help the central bank but could push unemployment higher. The government is set to decide which path to take in the coming weeks.