SYDNEY (BLOOMBERG) – Australia has downgraded its economic growth outlook by a half-percentage point for this fiscal year and next because of accelerating inflation, higher interest rates and a slowing global economy.

Treasurer Jim Chalmers, in excerpts of an economic statement to be delivered to Parliament on Thursday (July 28), said the economy expanded 3.75 per cent in the 12 months ended June 30, compared with the previous government’s estimate of 4.25 per cent ahead of a May election.

The economy is forecast to decelerate further in this fiscal year to 3 per cent from a prior expectation of 3.5 per cent, and then 2 per cent in fiscal 2024 from 2.5 per cent seen before.

“The Australian economy is growing – but so are the challenges. Some are home-grown, others come from around the world,” Mr Chalmers said in the excerpts of his speech.

“The headwinds our economy is facing – higher inflation at the top of that list, along with slowing global growth – are now reflected in the revised economic outcomes and forecasts.”

Mr Chalmers, who took office in May, said at the time that the new Labor government was inheriting the “trickiest” economic circumstances in living memory. He took over a budget deep in deficit over the forward estimates, providing little leeway for additional spending.

This has been further constrained by escalating inflation, which climbed to 6.1 per cent last quarter, the fastest pace in 21 years. Rapidly rising prices prompted the Reserve Bank of Australia (RBA) to raise interest rates at its past three meetings to 1.35 per cent from 0.1 per cent in May.

Most economists expect the central bank to hike the cash rate by another 50 basis points at its Aug 2 meeting as RBA governor Philip Lowe tries to keep inflation expectations anchored around itsĀ 2 per cent to 3 per cent target.

Money markets expect the RBA to take the cash rate to 3.2 per cent by the end of the year. It will release its quarterly update of economic forecasts on Aug 5.

RBA board member Ian Harper, in an interview this week, described Australia’s economy as robust and capable of withstanding further interest rate increases.