Treasurer reveals why oil crisis hitting one state harder than others

Tuesday, 19 May 2026 11:59

Rare early budget data reveals "significantly" weaker growth but NSW will stave off recession due to an unexpected source.

High interest rates stemming from the Middle East crisis are hitting the NSW economy harder than the rest of the country, the treasurer will declare, as he foreshadows "significantly" weaker growth.

But despite the gloomy outlook, Daniel Mookhey says the state will avoid recession due to investment in renewable energy projects.

In an address to the McKell Institute today, Mookhey will break from tradition to reveal key economic forecasts a month ahead of his June budget, warning of the impact from a prolonged conflict.

"Even if the war in the Middle East ended today, petrol prices are not falling tomorrow. Oil markets will take time to normalise. If they ever do," Mookhey will say in a signal the state believes the inflation crisis has a long way to run.

He'll also declare economic growth forecasts have more than halved since December's mid-year update.

"Instead of the NSW economy growing by the 2.5 per cent in 2026-2027 that we expected in December, the NSW Treasury expects the economy to grow by just 1 per cent in the year ahead," the treasurer will reveal.

"Attentive budget watchers will notice a slowdown more pronounced in NSW than elsewhere in the federation."

The simple reason, the treasurer will explain, is that higher inflation has led to the Reserve Bank hiking interest rates.

"But the more complicated explanation is this: higher interest rates hurt working Australians in every state, but they hurt working Australians more in this state," he will say.

A typical working family in Victoria borrows about $677,000, compared to an average NSW mortgage of $873,000.

"That is why NSW fares better when interest rates fall. And fares worse when they rise," Mookhey will say.

Next month's state budget is the last to be handed down before NSW voters go to an election in March next year, and the treasurer will use his speech to call on the Liberal Party to declare its support for net zero emissions

"NSW is (and was) the first state to truly have grasped that reaching net zero is a sound economic strategy," he will say.