Mid-year budget review examines challenges for economy

* Economic growth is expected to moderate to 1.75 per cent in 2023/24 before recovering to 2.25 per cent in 2024/25

* Household budgets remain under pressure from elevated but moderating inflation and higher interest rates

* Growth in real household disposable incomes is expected to pick up in 2024/25

* Financial markets and market economists see the current cash rate of 4.35 per cent as at or near its peak, well above the May budget assumption of 3.85 per cent

* The level of business investment is expected to remain elevated through 2023/24 and 2024/25, underpinned by commercial building, electricity transmission, generation and supply, and a few significant LNG projects

* Inflation is expected to reach 2.75 per cent in the June quarter 2025, but "could be more persistent, which will further weigh on household budgets"

* Oil prices have moderated but there is a risk of further price spikes, especially from the Israel-Hamas conflict and OPEC+ output cuts.

* The unemployment rate is expected to modestly rise over the next two years to reach 4.5 per cent by the June quarter 2025

* Annual real wage growth is expected to resume in early 2024 for the first time since early 2021

* Dwelling investment is forecast to recover, rising by one per cent in 2024/25, largely concentrated in medium and high-density dwellings

(Source: Mid-Year Economic and Fiscal Outlook)

Australian Associated Press