Australia’s economic outlook to be downgraded in budget amid global ‘deterioration’

Increasingly dire forecasts for the global economy will see last-minute downgrades to Australia's economic figures in next week's federal budget, with the treasurer, Jim Chalmers, warning of "an increasingly perilous path" for world markets and key trading partners.

The budget will forecast the UK economy to contract by 0.25% in 2023 and the US to grow by an anaemic 1%, with the government warning Australia would not escape a world slowdown.

"The budget will confirm the stark deterioration in the outlook for global growth and in several major economies, with some at risk of falling into recession," Chalmers said.

The treasurer travelled to Washington last week for meetings with the G20 finance ministers and the International Monetary Fund. He said the trip, coming less than a fortnight before his first budget, would help inform his understanding of looming economic trends.

Upon his return, Chalmers said his budget would revise down expectations of economic growth among key trading partners China, US, UK, India and Japan.

"The global economy is treading an increasingly perilous path and downside risks loom large - this was a clear message from meetings with my counterparts in Washington DC," he said.

"The budget will confirm the stark deterioration in the outlook for global growth and in several major economies, with some at risk of falling into recession."

In March, the federal Treasury expected China's economy to grow by 4.75% in 2022, 5.25% in 2023 and 5% in 2024. The latest figures, which will be factored into the budget, put those annual growth figures at 3%, 4.5% and 4.5% respectively.

The US was expected to grow by 3.5% in 2022, 2.5% in 2023 and 2% in 2024. They too have been revised down to 1.75%, 1% and 1.75%. The UK's 2023 projection will be sharply downgraded from 2% growth to a 0.25% contraction. The eurozone's growth will be revised down from 2.25% to 0.5% in 2023.

Chalmers said the national economy was shielded from some of the pressures contributing to the sharp decline of growth worldwide, but next week's budget is expected to see downgrades to domestic growth forecasts on the basis of international uncertainty.

"Here in Australia we have some things going for us, including plenty of people in work and decent demand for our exports, but we will not be spared from the consequences of a global slowdown," Chalmers said.

"A weaker global economy with higher inflation and heightened risks makes it even more important we deliver a responsible budget here at home, which is exactly what we will do next week."

The finance minister, Katy Gallagher, also gave a grim warning in a Sky News interview on Sunday.

"We do know is that it's going to be a pretty rocky next 12 months and we are not immune from that," she said.

Chalmers said the budget would deliver "responsible" cost-of-living relief, investments in the capacity of the economy and look toward budget repair. The government is trickling out budget announcements each day, including Sunday's confirmation of a $9.6bn infrastructure spending and foreshadowing of cuts to regional grants programs, which Labor claimed the former government had allocated inappropriately.

On Monday, the health minister, Mark Butler, will confirm the budget will contain $47.7m to fund bulk-billed telehealth psychiatry consultations in regional and rural Australia. From 1 November, telehealth will again be available for those appointments, after it was wound back last year by the former Coalition government.

"Even before the Covid-19 pandemic, people in rural and regional Australia had higher rates of mental health-related hospitalisation and suicide than those living in cities," Butler said. "The cut of the previous loading meant many patients were forced to pay gap fees or give up treatment, and some psychiatrists ceased to provide services in rural areas."

The government expects about 100,000 consultations will be supported each year through the change.

"Our rural and regional communities have endured drought, bushfires, floods and the impacts of Covid-19 in recent years - a perfect storm of factors that have taken a significant toll on people's mental health," Butler said.