Jim Chalmers warns of global doom and gloom amid new OECD inflation and growth forecasts

Jim Chalmers will use new forecasts to amplify major risks to Australia’s economic recovery, with the Treasurer to take aim at Donald Trump’s tariffs as the OECD warns global inflation will stay higher for longer.

Jim Chalmers will attack Donald Trump’s tariffs as economic self-harm in a speech on Tuesday.

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Jim Chalmers will use new OECD and Treasury forecasts to amplify major risks to Australia’s economic recovery ahead of next week’s budget, with the Paris-based organisation warning that global inflation will stay higher for longer and growth will take a hit as the US and China drag down the world economy.

The OECD outlook released on Monday night revised up ­global inflation forecasts and downgraded GDP growth projections in 2025 and 2026, linking the slowdown to higher trade barriers and increased geopolitical and policy uncertainty.

As the Albanese government seeks to convince voters that the domestic economy is turning around and that inflation is on a better trajectory, OECD secretary-general Mathias Cormann said global inflation was “expected to decline more slowly than previously anticipated”.

While maintaining its December forecast that the Australian economy would expand by 1.9 per cent this year, the OECD sharply downgraded its GDP growth projections from 2.5 per cent to 1.8 per cent in 2026. The OECD expects inflation to be slightly higher in Australia at 2.4 per cent in 2025, before easing to 2.2 per cent the following year.

Ahead of delivering his fourth budget next week, Dr Chalmers on Tuesday will attack Donald Trump’s tariffs as economic self-harm, self-defeating and self-­sabotaging, and cite Treasury analysis that found the indirect GDP impacts of a trade war could be up to four times larger than the direct effects of tariffs on our economy. In a major speech, the Treasurer will say: “In a world of retaliation and escalation, the impacts of tariffs are amplified, they linger for longer, resulting in a bigger reduction in GDP and a bigger increase in prices.”

Mr Cormann, who was Australia’s longest-serving finance minister before becoming the sixth OECD secretary-general in 2021, said key priorities for countries must be ensuring monetary policy remains prudent and that fiscal discipline is applied to “reduce public debt ratios”.

“In a complex global environment, recent signals of economic weakening highlight the need for prudent monetary and fiscal policies, ambitious structural reforms and multilateral co-operation,” Mr Cormann said.

“By taking these steps, governments around the world can lower risks and uncertainty, support economic resilience and drive sustainable growth that improves living standards for their citizens.

“Central banks need to remain vigilant in view of heightened ­uncertainty and the potential for higher trade costs to push up wage and price pressures.”

Speaking at the Queensland Media Club in Brisbane on Tuesday after the US President last week rejected pleas to exempt Australian steel and aluminium, Dr Chalmers will say the spillover effects of trade tariffs would have “consequences for us”.

“Treasury estimates the direct hit to GDP from steel and aluminium tariffs would be less than 0.02 per cent by 2030,” he will say.

“So the direct overall impacts on Australia should be manageable. But when you add in the indirect effects, the hit to GDP could be more like 0.1 per cent by 2030.”

Following recent extreme market volatility in the US and elsewhere, Dr Chalmers cautioned that “even in the most ­benign scenario, global growth over the next three years is expected to be its weakest since the 1990s”. He will say that tariffs and escalating trade tensions are “a form of economic self-harm”.

“They are self-defeating, and self-sabotaging,” Dr Chalmers will say. “More trade restrictions mean less growth and more inflation. The impacts of what we’re seeing will not be confined to one industry, or one community, or one quarter. These were two of the core conclusions of the OECD’s outlook report overnight. Trade barriers are a key reason why its economists expect slower growth. At the same time, they think ­inflation will linger for longer across the globe. The risk of recession in the world’s largest economy is rising too.”

The OECD report projects global GDP growth to moderate from 3.2 per cent last year to 3.1 per cent in 2025 and 3 per cent in 2026. Annual GDP growth in the US is expected to slow from its strong recent pace to be 2.2 per cent in 2025 and 1.6 per cent in 2026. Growth in China will slow from 4.8 per cent this year to 4.4 per cent in 2026.

Dr Chalmers will say Treasury forecasts in next week’s budget will have Chinese and American growth slowing to about 4.5 and 2 per cent respectively next year.

“The forecasts for the US are the same as the mid-year update but the downside risks are weighing more heavily now,” he will say. “Unemployment is rising overseas from higher interest rates, and in the UK inflation is going up again. This is the global backdrop for the budget.

“This is a time of serious volatility in a global economy which is increasingly uncertain and unpredictable. A new US administration disrupting trade, a slowdown in China, a war in eastern Europe and a fragile ceasefire in the Middle East, political division and dissatisfaction around the world.”

As Dr Chalmers delivers his Brisbane address before heading to Canberra to finalise budget preparations, Anthony Albanese will on Tuesday fly into Queensland, where he is hoping to win the seats of Leichhardt, Brisbane and Griffith at the May election.

The Australian understands department officials are being told to prepare for budget estimates hearings earlier than scheduled. Bringing forward the hearings from April 7 to late next week is understood to be linked with plans for the Prime Minister to call an election for May 10, fuelling speculation he will wait until the week after the budget before heading to Yarralumla.

In his speech, Dr Chalmers will commit the government to no retaliation against the US because “more and higher tariffs would harm, not help, our workers, businesses, industries and economy”.

Dr Chalmers, who has flagged a $1.2bn budget hit triggered by Cyclone Alfred, will use the speech to identify key themes and priorities of the election-eve budget. While holding back campaign announcements, the budget includes tens of billions of dollars in spending unveiled since late last year including $8.5bn for Medicare, $644m for urgent care clinics and $7.2bn for the Bruce Highway.