Economic Growth Outlook Dimmed by Interest Rate Rises: Australian Treasurer

Treasurer Jim Chalmers speaks during a Labor Campaign Rally in Brisbane, Australia, on May 15, 2022. Lisa Maree Williams/Getty Images

Newly appointed Treasurer Jim Chalmers has said that Australia’s economic growth outlook will be affected by increasing interest rates.

The warning comes after the treasurer had discussions with Reserve Bank of Australia (RBA) governor Philip Lowe as the central bank is trying to curb the fast-growing inflation.

The RBA has explicitly displayed its intention to raise interest rates further in 2022, following the first cash rate rise since 2010.

“The Reserve Bank has appropriately been very upfront about the interest rate trajectory because we do have skyrocketing inflation, which is expected to get worse before it gets better,” Chalmers told reporters in Canberra.

“They will obviously have an impact on the economy.”

Meanwhile, RBA assistant governor for economics Luci Ellis has refused to conjecture what level the cash rate might reach as Australia and the world economy are facing complicated situations.

According to the assistant governor, inflation has shot up worldwide, and Australia’s labour market is currently in very tight conditions but with declining real wages.

Moreover, the Russia-Ukraine war is still ongoing, while COVID-19 lockdowns imposed on parts of China are worsening supply chain disruptions.

“Making a prediction in the light of so many events just seems inappropriate,” Ellis said.

“The board has already said there’s more from here, but we will be watching the data and the evidence very carefully and working out what the appropriate action is.”

Economists have also anticipated the RBA to lift the cash rate somewhere between 0.25 percent and 0.5 percent at the June 7 board meeting.

A construction site is seen empty in the central business district of Parramatta in Sydney, Australia, on July 31, 2021. Lisa Maree Williams/Getty Images

Meanwhile, new data from the Australian Bureau of Statistics indicated that construction work declined in the March quarter, which was expected to put downside risks on economic growth.

In particular, the total value of construction work done in the March quarter dropped 0.9 percent to around $53.7 billion (US$37.98 billion).

Additionally, the value of building work done dipped by 1.3 per cent to $30.1 billion during the period, with residential and non-residential construction contracting by 0.9 percent and 1.8 percent, respectively.

Engineering work also decreased by 0.4 percent, standing at $23.6 billion.

Ellis hinted that the residential construction industry was likely to reach its capacity, which she said was not a result of land availability or government approval issues.

“We hear from liaison contacts in the construction industry that delays are common,” Ellis said.

“Normally, a detached home takes about six months to build. Currently, they are telling us that it is averaging around nine months.”

Ellis said supply chain disruptions contributed to some of those delays as the industry was facing building material shortages.

“Availability of labour is also an issue, especially in Western Australia, but this is not specific to construction,” she said.