“People’s view of the economy is now sufficiently sad that they are now a risk,” said Mr Richardson.
That lack of confidence can turn into a self-fulfilling prophecy as businesses and consumers hold back on spending, pulling back real-world economic growth.
The report found retail has endured its deepest downturn since 1990, construction is shrinking at its fastest rate since 1999, and farmers and finance have had their worst period since the global financial crisis.
The summer’s bushfires have only compounded those fears, putting the size of the first surplus in a decade at risk after the government was forced to spend more than $2 billion on relief payments. The tourism industry has taken a $1 billion hit driven by cancellation rates of up to 60 per cent, according to the Australian Tourism Industry Council.
Finance Minister Mathias Cormann confirmed on Saturday that work had begun on the federal budget, but that it was too early to say what the overall economic impact of the bushfire season would be.
Some of the nominal budget hit is likely to be offset by conservative Treasury estimates in December, which forecast a dive in commodity prices – particularly iron ore – that would have sucked $60 billion out of annual income. So far, despite a rebound from Brazilian iron ore giant Vale competing with Australian exports, those forecasts are yet to eventuate, leaving the government with more room to spend.
Shadow Treasurer Jim Chalmers has urged the government to consider using some of the $5 billion surplus forecast for 2019-20 to stimulate the economy.Credit:Alex Ellinghausen
Shadow treasurer Jim Chalmers has urged the government to consider using some of the $5 billion surplus forecast for 2019-20 to stimulate the economy. The government was forced to cut $21 billion from surpluses over the next four years in the mid-year economic update as forecasts deteriorated.
“The economy was already floundering under Scott Morrison and Josh Frydenberg before the fires hit, and now this new report says things won’t get much better this year for Australian workers and families,” he said.
“This is the price Australians are are paying for the ineptitude and inaction of a do-nothing government.”
More than a dozen market economists surveyed by Bloomberg on Friday expect the Reserve Bank to keep interest rates on hold when it meets in the first week of February. They have forecast a cut to a new record low of 0.25 per cent forecast for the September quarter.
Treasurer Josh Frydenberg said the report commended the government’s fiscal strategy saying, if needed, “Australia can use fiscal firepower in a way few other nations can”.
“This is a clear message to those trying to talk the economy down. with the economy showing remarkable resilience despite a number of challenges,” he said.
Eryk Bagshaw is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra
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