Australia’s growth will likely be slower than the 1.75% forecast in May’s budget, Australian Treasurer Jim Chalmers said Friday, as a series of rate hikes and rising inflation start to bite on the economy.

Australian Treasurer Jim Chalmers said Friday that economic growth is likely to come in below the 1.75% forecast set out in May's budget, attributing the shortfall to the cumulative effect of successive interest rate increases and elevated inflation. The core transmission mechanism is domestic demand: higher policy rates raise mortgage servicing costs and tighten household consumption, while persistent price pressures erode real incomes, reducing the spending that drives GDP. Australian government bonds and the Australian dollar are most directly exposed, since downgraded growth expectations tend to pull forward expectations for the Reserve Bank of Australia to pause or cut, compressing short-end yields and weighing on the currency against higher-yielding peers. Rate-sensitive domestic equities, particularly banks, housing-linked stocks, and consumer discretionary names, face secondary pressure as earnings expectations are revised lower. Traders should watch the next quarterly national accounts release for household consumption and the monthly CPI print, as the combination of weak spending and sticky inflation would be the clearest signal of whether the RBA's tightening cycle has o

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