Australia could be facing a $50 billion budget deficit in the next financial year as the economy struggles to grow in a global recession, one of the nation's largest banks says.
Prime Minister Kevin Rudd conceded on Sunday that the worsening global recession would make it "virtually impossible" for Australia to sustain positive economic growth.
Treasurer Wayne Swan, who will hand down his second budget on May 12, agreed.
"I do agree with him that it will be virtually impossible to avoid a period of negative growth," Mr Swan told ABC Radio on Monday.
Mr Rudd's grim outlook was based on last week's "very gloomy" International Monetary Fund (IMF) forecasts for the global economy.
"I think he was being frank about the impact of that on the Australian economy," Mr Swan said.
Opposition Leader Malcolm Turnbull said the country was heading for a "Rudd recession".
"(Mr Rudd) seems to have given up the battle to keep us out of recession and has acknowledged that his $23 billion now of cash splashes have had no effect," Mr Turnbull told reporters in Sydney.
The IMF is now forecasting that the world economy could contract by up to 1.0 per cent this year on average, the sharpest decline in global growth in the post-war era.
While the IMF made no predictions for the Australian economy, National Australia Bank (NAB) Capital chief economist Rob Henderson says it means that Treasury will have to cut its growth forecast in the budget.
In last month's Updated Economic and Fiscal Outlook (UEFO), growth was forecast to rise just 0.75 per cent in 2009-10.
"When we do the numbers, even on the IMF's data, it's hard to get better than zero," Mr Henderson told AAP.
He also believes the December quarter 2008's 0.5 per cent drop in gross domestic product was weaker than the Treasury would have expected in its calculations, making it "pretty hard to come up with a positive number".
"For the budget (deficit) this means an upward revision from $35.5 billion to $45 to $50 billion," Mr Henderson said.
In the UEFO, the budget forecast for 2009-10 reeled into a $35.5 billion deficit from a $3.6 billion surplus in the November mid-year budget review - itself a massive downgrade from a $19.7 billion surplus predicted in the budget last May.
A likely contraction in economic growth also has implications for employment growth with the jobless rate now expected to top the 7.0 per cent Treasury previously forecast for next year.
Mr Henderson now sees an upside risk to his 7.5 per cent jobless forecast with the economy unlikely to recover sufficiently late in 2010 to generate jobs to bring down unemployment down.
"You need three per cent GDP growth to find a reduction in unemployment," he said.
Despite facing a daunting budget deficit and tough decisions, Mr Swan said the government's pledge to increase the aged pension stands.
"We have made a commitment to pensioners, we are serious with that commitment," Mr Swan said.
But when asked whether spending cuts for defence and in other areas was likely, Mr Swan said: "I am not going to get into the business of ruling anything in or anything out."
Neither would he speculate whether there would be a further stimulus package in the budget.
AAP
