Treasurer urges Australians not to panic as Reserve Bank downgrades growth projections and Peter Costello issues warning on retirement savings

This article is more than 1 year old

This article is more than 1 year old

The Australian government is “absolutely determined” to deliver a surplus, despite the “unwanted escalation” of US-China trade tensions increasing economic uncertainty, the treasurer has said.

On Wednesday Josh Frydenberg urged Australians not to panic despite the Reserve Bank downgrading growth projections and the former treasurer Peter Costello warning the trade war will erode retirement savings.

On Tuesday the benchmark ASX200 index dropped more than 2.4%, although the Australian share market was expected to open higher on Wednesday after Wall Street clawed back some of its losses of the previous day. The Aussie dollar was buying 67.62 US cents from 67.83 US cents on Tuesday.

Australian stock market down 2.4% as US-China trade war hits home Read more

After two consecutive rate cuts, the Reserve Bank held interests unchanged at 1% on Tuesday. It noted in its statement that “economic growth in Australia over the first half of this year has been lower than earlier expected, with household consumption weighed down by a protracted period of low income growth and declining housing prices”.

The RBA now predicts the Australian economy will grow by around 2.5% over 2019 – down from 2.75% as previously expected – and 2.75% over 2020.

Frydenberg said “we shouldn’t overreact to these developments but we should recognise that China’s currency moves and the increase in US tariffs are an unwanted escalation”.

“We also need to be realistic that there is greater uncertainty in the global economic outlook,” he told ABC’s AM.

Frydenberg said China’s currency devaluation was one of a number of “concerning developments”. “Our message is to continue to encourage cool heads to prevail and for differences between China and the US to be negotiated between the parties.”

Costello said that “unless the parties can sit down and actually sensibly negotiate, I think you are going to have a lot of uncertainty and a lot more gyrations on global markets in the weeks … ahead”.

“The Chinese currency would be better if it were more flexible; we have argued for a long time that China should move to more of a market system,” Costello reportedly told the Australian.

“Australian retirees have lost money,” Costello said, although he warned it was important not to “overhype” the two-day losses of $86bn.

“Superannuation funds have lost money. If this were to continue, this will ­affect Australian savings and ultimately will affect the budget.”

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Frydenberg said superannuation returns had averaged about 5% over the last year, a higher return than cash, and downplayed suggestions the budget surplus is at risk.

“We’ll still deliver a surplus next year, we’re absolutely determined to do that.”

On Tuesday the former prime minister Paul Keating took aim at a group of Liberal backbenchers arguing for compulsory superannuation to be frozen at 9.5%.

Keating dismissed claims that legislation set to increase retirement savings to 12% could stymie already sluggish wage growth.

“It’s demonstrably false because nobody since 2014 has had any increase in super, there’s been no 2.5%, yet wages have not increased at all,” he told ABC’s 7.30 program.