August 13, 2022

Global stagflation is a risk, warns Australian finance minister

Australian Finance Minister Katy Gallagher has warned that Australia and the world face the risk of global stagnation and high inflation, a situation known as stagflation.

In its latest annual report, the Bank for International Settlements (BIS), also known as the central bank of central banks, said global economic developments over the past year have been shaped by the COVID pandemic. -19 and the Russian-Ukrainian war.

“This combination of forces creates a challenging outlook,” the BIS said.

“The mix of high inflation, high and volatile commodity prices, and significant geopolitical tensions uncomfortably resembles past episodes of global stagflation.”

Additionally, the report pointed to China’s uncertain growth outlook as a risk factor for the outlook for the global economy.

“Unlike in the past, stagflation today would occur alongside heightened financial vulnerabilities, including stretched asset prices and elevated debt levels, which could amplify any slowdown in growth,” the institution warns.

After reading the report, the Minister of Finance said that while the stagflation referred to by the BIS was a worst-case scenario, it was true that the Australian economy was facing many difficulties.

“We have skyrocketing costs of living, we have rising interest rates, we have still stagnant wages, and that presents real challenges for people,” she told Sky News. .

“The government’s job is to see how we can make our policies. Our wise investments stimulate the productive capacity of the economy.

Shoppers walk through the Pitt Street shopping center in Sydney, Australia, on June 7, 2022. (Brendon Thorne/Getty Images)

Investments proposed by the Labor government include childcare reform, job training and spending on renewable energy.

“These are things that will help the economy in the long term without increasing inflation in the short term,” Gallagher said.

Nonetheless, investments promised by Labor in the federal election were expected to cut the federal budget by $7.4 billion (US$5.19 billion) over the next four years.

Australian economy benefits from high commodity prices

Although it brings many unstable factors to the global economy, Russia’s invasion of Ukraine has pushed commodity prices to very high levels, directly benefiting Australia.

The Department of Finance released its financial statements for May 2022, revealing an underlying budget deficit of $33.4 billion.

The figure was less than half of the $79.8 billion 2021-22 deficit projected in the March budget and was attributed to high commodity prices.

Although the finance minister welcomed the improved budget, she said it would not last long.

“We are seeing improvements. It’s in those areas that are very volatile, around commodity prices, and we saw some easing in those last week,” Gallagher told ABC radio.

“We don’t expect (budget improvement) to continue at this pace.”

Alfred Bui

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Alfred Bui is an Australian journalist based in Melbourne and focuses on local and business news. He is a former small business owner and holds two master’s degrees in business law and business law. Contact him at alfred.bui@epochtimes.com.au.