Chalmers warns of worsening economy as oil prices surge and AI wobbles add pressure

Treasurer says officials downgrading forecasts for slower growth and higher unemployment

By LineZotpaper

Published23 October 2026

Updated23 October 2026

Read Time2 min

Sources3 outlets

Treasurer Jim Chalmers has revealed that his officials are downgrading economic forecasts ahead of December's mid-year budget update, with slower growth and higher unemployment expected. The warning comes as a broadening Middle East conflict pushed the global benchmark oil price to US$113 a barrel and fresh concerns emerged over the sustainability of AI-related investment spending.

In a speech last week, Treasurer Jim Chalmers offered the scant encouragement that the economy would be "a bit better" in a year's time. But on Friday he disclosed that Treasury officials were busy downgrading their forecasts to show a worsening outlook, with higher unemployment and weaker growth on the way.

Overnight, the Middle East conflict pushed oil to US$113, near its April high of nearly US$120. Motorists are paying 60 cents more per litre of petrol than before the US and Israel attacked Iran, equivalent to an extra $36 to fill a 60-litre tank, or $144 a month for weekly fill-ups. Westpac analysts have sketched an "escalation" scenario where oil climbs towards US$150, echoing warnings from the International Monetary Fund.

Meanwhile, the one bright spot that has helped paper over cracks in the global economy, the huge spending associated with artificial intelligence, has hit "serious wobbles", with investors worried about the surge in debt among companies building AI infrastructure. Community opposition to datacentre build-outs could stall the rush towards an AI future, adding another stress to the economy.

Mr Chalmers said: "The pressures on people right now are very substantial and obviously that keeps me awake at night." He added: "And there's a number of reasons for that, some of them are outside our control, and some of them we have some influence over. You know, providing some cost-of-living help, managing the budget in a responsible way."

The high level of government spending is not helping the inflation fight, a point the opposition is keen to highlight. Productivity growth shows no signs of returning, meaning more inflation at lower growth. With the potential for a fifth interest rate hike on 3 November, Mr Chalmers faces what the Reserve Bank's Andrew Hauser called a "world of hard choices" where the solution to one problem makes the other worse.

Analysis

Why This Matters

Australian households face rising fuel costs (an extra $144 per month for a family filling up weekly) and potentially higher interest rates on 3 November, further squeezing budgets.
Slower growth and higher unemployment mean more Australians may lose jobs or see wages fall behind inflation.
The December mid-year budget update will reveal the government's revised forecasts and any policy response, with implications for cost-of-living relief and fiscal discipline.

Background

Treasurer Jim Chalmers is grappling with a difficult economic environment: high inflation, low growth, rising unemployment, and external shocks from the Middle East conflict and global financial markets. The Reserve Bank has warned that the inflation outlook is worsening, and analysts expect another rate hike. The government's spending is criticised by the opposition for adding to inflationary pressure, but cutting spending could further weaken the economy. Chalmers has limited room to ease voter discontent, as he frequently notes that many factors are beyond Canberra's control.

Key Perspectives

Treasurer Jim Chalmers: He emphasises that many pressures are outside the government's control (decisions in Washington, Tehran, Eastern Europe) and that the government is providing cost-of-living help and managing the budget responsibly, but is largely hostage to global events. Opposition: The high level of government spending is not helping the inflation fight, and they point to the need for fiscal discipline to support the RBA's efforts. Reserve Bank (Andrew Hauser): Describes the situation as a "world of hard choices" where addressing one problem (e.g., cutting fuel excise) makes inflation harder to control, while spending cuts would drag on growth.

What to Watch

The RBA's decision on 3 November 2026: whether a fifth interest rate hike is delivered.
Oil price movements: if the conflict escalates and pushes crude towards US$150, inflation and rate expectations could spike further.
The December mid-year economic and fiscal outlook (MYEFO): any major spending cuts or new cost-of-living measures will signal the government's strategy.

Sources

Jim Chalmers faces a world of hard choices where the solution to one problem makes the other worse · Business | The Guardian
Jim Chalmers faces a world of hard choices where the solution to one problem makes the other worse · World news | The Guardian
Jim Chalmers faces a world of hard choices where the solution to one problem makes the other worse · Australia news | The Guardian

Checked

12 claims in this story checked against 1 source: 11 supported.

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SupportedChalmers’ officials are downgrading forecasts ahead of December’s mid-year budget update, with slower growth and higher unemployment expected.Business | The Guardian: “the treasurer revealed that his officials were busy downgrading their forecasts ahead of December’s mid-year budget update to show slower growth and higher unemployment.”
SupportedThe economy would be “a bit better” in a year’s time, Chalmers said in a speech the previous week.Business | The Guardian: “Jim Chalmers in a speech last week offered the scant encouragement that the economy would be “a bit better” in a year’s time.”
SupportedA broadening Middle East conflict pushed the global benchmark oil price to US$113, near its April high of nearly US$120.Business | The Guardian: “Overnight, a broadening Middle East conflict pushed the global benchmark oil price to US$113, and within sight of its April high of nearly US$120.”
SupportedMotorists are paying 60 cents more per litre than before the US and Israel attacked Iran—$36 extra for a 60-litre tank, or $144 more a month with weekly fill-ups.Business | The Guardian: “Motorists are paying 60 cents more for a litre of petrol prices than they were before the US and Israel attacked Iran. That’s an extra $36 to fill up a 60-litre tank. Do that once a week and a family’s monthly fuel bill is $144 higher than in February.”
Partly supportedInvestors are concerned about the sustainability of AI-related investment spending.Business | The Guardian: “Investors are worried about the huge surge in debt among companies racing to build the infrastructure for an AI future”
SupportedWestpac analysts outlined an escalation scenario in which oil climbs towards US$150, echoing IMF warnings.Business | The Guardian: “Westpac analysts have sketched out an “escalation” scenario for the Middle East conflict where oil climbs towards US$150, echoing warnings from the International Monetary Fund earlier this month.”
SupportedThe spending associated with AI has hit “serious wobbles,” with investors worried about debt among companies building AI infrastructure.Business | The Guardian: “the huge spending associated with artificial intelligence – has hit some serious wobbles. Investors are worried about the huge surge in debt among companies racing to build the infrastructure for an AI future”
SupportedCommunity opposition to datacentre construction could stall the rush towards an AI future and add stress to the economy.Business | The Guardian: “Community opposition to the massive datacentre build-out could stall the headlong rush towards an AI future. That is likely a good thing in the longer term, but in the short term is another stress to add to the wall of worries.”
SupportedChalmers said the pressures on people were substantial and kept him awake at night.Business | The Guardian: ““The pressures on people right now are very substantial and obviously that keeps me awake at night,” Chalmers told Politico.”
SupportedChalmers said some reasons for the pressures were outside the government’s control and some were within its influence, including cost-of-living help and responsible budget management.Business | The Guardian: ““And there’s a number of reasons for that, some of them are outside our control, and some of them we have some influence over. You know, providing some cost-of-living help, managing the budget in a responsible way,” he said.”
SupportedHigh government spending is not helping the inflation fight, a point the opposition highlights.Business | The Guardian: “The high level of government spending is not helping the inflation fight, by any means – something the opposition is keen to point out at every opportunity.”
SupportedThe Reserve Bank’s Andrew Hauser called it a “world of hard choices,” where a solution to one problem makes another worse.Business | The Guardian: “This is Hauser’s “world of hard choices” – a world where the solution to one problem makes the other worse.”