Hedge Clippings | 14 April 2023

Jim Chalmers headed off to Washington this week for meetings with the G20, the World Bank, and the International Monetary Fund (IMF) among others, and ahead of his first full federal budget in May. The Treasurer's visit coincided with the IMF's release of their latest economic outlook, which to say the least, was not rosy, predicting an uncertain global outlook driven by financial sector turmoil, high inflation, the ongoing effect of Russia's invasion of Ukraine, and three years of COVID.

The IMF's forecast included a downgrade for Australia's GDP growth to 1.6% this year, rising only slightly to 1.7% in 2024, although above the average of all Advanced Economies of 1.3% and 1.4% in 2023 and 2024 respectively. Australia's outlook may be subdued, particularly when compared to the important Asian powerhouses of China and India, but is positively buoyant when looking at the Euro Area, which is forecast to grow by 0.8% this year prior to rising to 1.4% in 2024. Spare a thought for Germany (-0.1% and 1.1%) and the UK (-0.3% and 1%).

Chalmers has been at pains to point out both the problems that the Australian economy faces, his budget challenges, and while also talking up the strength of Australia's financial system and our banks. Following the implosion of SVB and Credit Suisse he is naturally keen to ensure that confidence in Australia's financial system remains intact. The reality is that confidence is what keeps banks' doors open.

However well capitalised Australian banks are, if too many customers wanted their funds on deposit returned in a short space of time, as happened with SVB, the banking and financial system would fail. What added to the problems at SVB was the speed at which information travels in a wired world, plus the highly tech savvy nature of SVB's business, and their customers. Hence Chalmers' reassuring words.

On a more positive note, there may be light at the end of the tunnel in Australia's trade woes with China. In spite of Paul Keating's recent tirade against the government, and in particular his criticism of Penny Wong's performance as Foreign Minister, it would seem the "quietly-quietly- behind-the-scenes" approach (along with the potential threat of China coming off second best in the WTO's hearing over barley) is more effective than name calling. No one likes losing face, particularly the Chinese.

If, as seems likely, China lifts its tariffs on Australian barley as a result of the federal government suspending its complaint to the WTO, other agricultural sectors including wine, timber, and lobsters could be next.

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