“The global economy is volatile and unpredictable,” Treasurer Jim Chalmers said last night. “Trade disruptions are rising, China’s growth is slowing, war is still raging in Europe, and a ceasefire in the Middle East is breaking down.”

Treasury agrees. The traditional “outlook for the international economy” section of Budget Paper No. 1 is a tale of woe. “The escalation of global trade tensions has contributed to significant market volatility and made the international outlook more uncertain. Tariffs and other trade barriers could weigh on global growth by disrupting trade and investment flows, driving up costs for businesses and consumers … A slowdown in global growth stemming from these pressures would also adversely affect demand for key Australian exports …”

Both cases are nice examples of the bureaucratic tradition of passive voice. Trade disruptions are variously “rising” or “escalating”, but it sounds more like a weather report than a description of the fact that there’s only one source of trade tensions: Donald Trump. “Recent trade policies and the associated policy uncertainty” is the closest Treasury comes to mentioning the mad king and his crazed policies.

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Curiously, despite the gloomy rhetoric, Treasury’s international economic forecasts — about factors that play an important role in Australia’s prosperity, especially given our reliance on China — remain almost completely unchanged. Global growth in the 2024 budget this time a year ago was forecast, from 2024 to 2026, to be 3.25% every year. In the Mid-Year Economic and Fiscal Outlook (MYEFO) in December — prepared after the election of Trump — it was forecast to be… 3.25% every year. And in last night’s budget, global growth is, you guessed it, 3.25% a year from 2025-27.

Ditto many of the country forecasts. In fact, despite the warning that China faces “growing near-term pressures from the property sector downturn and rising trade tensions with the United States”, Treasury revised its growth forecast for China up by a quarter of a percentage point both this year and next. US growth is unchanged at 2% a year despite the warnings of a Trumpcession.

But despite a rosy outlook for Europe (“Less restrictive monetary policy and rising real wages are expected to support consumption in the near term. The prospect of increased defence and infrastructure spending [particularly in Germany] could also boost growth”), the forecast for Europe has been revised down a fraction this year and next.

Confusing, isn’t it?

And Treasury doesn’t expect any impact at all on the prices of our key exports. This is what MYEFO said about our major exports in December:

The iron ore spot price is assumed to decline to US$60/tonne; the metallurgical coal spot price declines to US$140/tonne; the thermal coal spot price declines to US$70/tonne; and the LNG spot price converges to US$10/mmBtu.


And what last night’s budget said:

The iron ore spot price is assumed to decline to US$60/tonne; the metallurgical coal spot price declines to US$140/tonne; the thermal coal spot price declines to US$70/tonne; and the LNG spot price converges to US$10/mmBtu.

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The only noteworthy revision is that the budget assumes the dollar is a little weaker at 62 US cents compared to MYEFO’s forecast of 66 cents, and oil is expected to be a little more expensive, US$81 a barrel compared to US$77. That oil price forecast looks a little implausible: the global oil price has been under US$70 a barrel for most of 2025 because of fears of weak demand — thanks to He Who Must Not Be Named. The only way that it would get to $US80 a barrel and stay there would be a sudden and sustained relaxation of the Trump-induced trade and growth fears, or a sudden escalation in a geopolitical conflict.

But despite the looming trade turmoil and the tariffs already imposed by the mad king, our terms of trade are expected to improve substantially for the remainder of this financial year compared to where Treasury thought they would end up in December, thus delivering a smaller current account deficit, before the terms of trade decline a tad next year compared to previous forecasts.

In short, Treasury has been risk averse about international risks. It hasn’t factored the looming trade war into its forecasts for our commodities, or even for global growth. If it had used forecasts more weighted to the downside risks presented by Trump, that would have fed into lower growth and revenue estimates for the budget itself — something the government may not have been particularly keen on.

But that does create a potential problem down the track if Trump really does derail the US, Chinese and global economy with a trade war. Overnight, ratings agency Moody’s said that the budget “will have little near-term impact on Australia’s overall rating outlook”, but warned about the risks “around the outlook for China’s economy as it slows and in the global trade environment as sovereigns become more protectionist, with potential negative impacts on the demand for and prices of Australia’s key exports”.

If those risks eventuate, our revenue forecasts are going to fall apart very quickly. For a country with a persistent gap between revenue and spending, that’s not a good problem to have.

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