(Bloomberg) -- Australian Treasurer Jim Chalmers said the department he oversees is closely watching slowing growth in China, which he described as the greatest risk to Australia’s economy alongside elevated interest rates.

Chalmers pointed to deflation, declining exports, a slump in China’s property market and pockets of concern within its banking sector as among the challenges facing Australia’s largest trading partner. 

“I share the pretty substantial concerns people have voiced about the Chinese economy,” Chalmers said in a Sunday interview on Sky News Australia. “It is concerning to see the weakness, the softness in recent weeks and months in the Chinese economy because it has obvious implications for us here in Australia.”

The Treasurer said official forecasts for the Australian economy released with the latest budget in May predicted a deceleration in growth, but those expectations could weaken further if China substantially slowed. However, the deteriorating outlook for China was unlikely to push Australia into recession, he said.

“The two biggest challenges I think to that growth outlook are what is happening in China — that is a big part of that story — but also the lagged impact of all of those interest rate rises in the system,” Chalmers said. The Reserve Bank of Australia left interest rates unchanged for a second time earlier this month following 400 basis points of tightening since May last year.

Economists at Morgan Stanley, JPMorgan Chase & Co. and Barclays Plc are among those that see China missing its official growth target of around 5% this year, as pressures mount within the economy. China has fallen short of delivering broad stimulus but has instead opted for targeted support measures.

Earlier this month, China cut its main policy rate in a surprise move that marked the biggest reduction in the one-year loan rate since 2020. Last week, the country eased mortgage policies to spur growth in the property sector. These and other efforts form part of a patchwork of announcements in recent months designed to spur activity across a range of sectors from property to consumer goods and the auto industry.

Chalmers said July retail sales figures due for release Monday and inflation data on Wednesday would give further indication of the health of Australia’s economy but warned the measures were volatile.

“These monthly readings are notoriously volatile, they bounce around and surprise you in either direction but the overall direction of travel is pretty clear — our economy is weakening as a consequence of what is happening in the world and what has happened with interest rates.”

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