Treasurer Jim Chalmers says Australians must steel themselves for potentially rocky times ahead as global economic forecasts predict the lowest medium term growth in more than three decades.
Mr Chalmers is in Washington DC for the International Monetary Fund (IMF) and World Bank's biannual high-level week, which brings together finance ministers and central bankers to discuss the state of the global economy.
"The International Monetary Fund and others can't rule out a hard landing in the global economy," he said during a press conference outside the White House.
"And then we won't be completely immune from that in Australia."
The treasurer will hand down his federal budget on May 9.
He said it will be built on the expectation that the economy will "slow considerably" but argued that Australia is "better placed than most to deal with this global uncertainty".
He promised a budget that is "responsible and sustainable" but also vowed to provide some relief for those who have been particularly hard hit by high inflation.
"We expect inflation in Australia to be higher than we'd like for longer than we'd like. This inflation problem in the global economy and in our own economy is a persistent one," he said.
'We are confident but not complacent'
The inflation rate in Australia has eased somewhat in recent months.
Last month, the Australian Bureau of Statistics' monthly consumer price index showed annual inflation of 6.8 per cent over the year to February, down from 7.4 per cent in January and a peak of 8.4 per cent in December.
New data released on Thursday suggested that headline inflation in the United States has also fallen from its recent highs.
The consumer price index rose by just 0.1 per cent in March and was up 5 per cent from a year ago.
Core inflation, which is the preferred metric of central banks, is still stubbornly stuck well above the target band despite an extraordinarily fast pace of interest rate hikes in the past 12 months.
It was up 5.6 per cent on an annual basis.
"We enter this new period of global economic certainty from a position of relative strength. We are confident but not complacent about how this will play out," Mr Chalmers said.
"We are optimistic about the future, but we are realistic about what a global downturn would mean for our economy."
There have been seismic shifts since the treasurer was in the US last year, with the collapse of Silicon Valley Bank and Signature bank, the implosion of Credit Suisse and the forced takeover of it by long term rival UBS.
Jim Chalmers said he has taken note of the collapses but said Australians should be confident in its own banking system which he said is "well capitalised" and "well placed to deal with the kind of turbulence that we've been seeing in the banking system elsewhere".
The treasurer is in Washington DC for about 45 hours, but will squeeze in 18 meetings, including sessions with US Treasury Secretary Janet Yellen and UK Chancellor of the Exchequer Jeremy Hunt.
IMF says inflation 'stubbornly high'
Mr Chalmers arrived in the United States the day after the IMF warned that the level of risk in Australia's housing market is the second-highest in the developed world.
Using a range of risk indicators, the IMF said Australian households with mortgages are at greater risk of defaulting on mortgage repayments due to higher levels of household debt, rising interest rates contributing to higher mortgage rates, and elevated house prices.
Australia was second only to Canada, and was followed by Luxembourg, Norway, Sweden, and the Netherlands.
The Reserve Bank of Australia has aggressively tightened interest rates from 0.1 per to 3.6 per cent over the past year to combat inflation.
It is a difficult balancing act for all countries, according to Anne-Marie Gulde, the deputy director for the IMF's Asia-Pacific division.
"The financial sector stress has worried all of us, including the IMF. [The] direct spillover to Asia, and also to Australia, have not been significant. But there is clearly the expectation that [it will] impact on economic behaviour," she told the ABC.
Ms Gulde said core inflation across the globe has been "stubbornly high and is really a cause for concern".
"That's why our overarching message is still that that monetary policy generally has to be tight, data dependent and focused on getting core inflation lower," she said.
She said banks in Australia are in good shape but "it's really important to stay vigilant in the financial sector", especially in an environment where interest rates have had to go up so fast.
The IMF has also sounded the alarm this week on ballooning public debt since the COVID-19 pandemic as governments spent big to provide support to their people.
She said Australia is not one of the countries the IMF is most concerned about given its relatively low debt burden.
But she warned that any new support offered in the next budget should be "targeted and temporary" because it could also be inflationary.
Despite the pessimistic set-up to his arrival in the US capital, Mr Chalmers was trying to project a sunny disposition.
"I am confident and optimistic about the future," he said.
"But we've got some choppy waters to navigate in the interim."
