Australia hopes to fend off recession despite global economic dangers

The Australian economy will likely avoid a recession despite the world economy being in "a dangerous place right now", Treasurer Jim Chalmers said on Tuesday, ahead of the government's first budget in two weeks.

Speaking to reporters, Chalmers warned the global economy was heading for a substantial downturn and Australia would not be "immune" from that.

However, it was not the government's expectation that Australia's economy will go backwards.

"The budget that I hand down ... won't have an expectation or a forecast that the Australian economy falls into recession," he said.

Aggressive rate hikes to curb runaway inflation, continuing high food and energy prices and geopolitical risks from Russia's war in Ukraine have heightened concerns for global recession in the months to come.

Both World Bank and International Monetary Fund on Monday warned of a growing risk of global recession, citing concerns about slowing growth in advanced economies and currency depreciation in many developing countries. 

Mindful of the economic strains already in the domestic economy with households under pressure and business grappling with rising costs, the Reserve Bank of Australia last week unexpectedly slowed the pace of rate hike with an increase of 25 basis points, after four outsized moves of 50 bps.

The RBA also warned of rising financial stability risks, which would be "magnified by a further substantial tightening in global financial conditions." 

Chalmers said inflation, the global economy and spending pressures are the three most important factors which would provide the backdrop for the budget, which will be unveiled on October 25. This will be the Labor government's first budget after winning election in May.

"We can expect substantial downgrades to the global growth outlook in the Budget," said Chalmers. "It won't be fancy. It won't be flashy. It will be responsible. It will be solid."