TREASURER Josh Frydenberg is forecasting a slightly smaller budget deficit for the 2021/22 financial year, while predicting strong growth and a sharp fall in the unemployment rate.

He is also predicting in his mid–year budget review wages growth of three per cent in 2023/24, a rate not since the coalition came to power in 2013.

The budget deficit for 2021/22 is now forecast at $99.2 billion in 2021/22 in the mid–year economic and fiscal outlook compared to the $106.6 billion prediction made in the May budget.

"The MYEFO shows an improvement in the fiscal outlook since the 2021/22 budget, even accounting for the impacts of the Delta imposed lockdowns," the treasurer and Finance Minister Simon Birmingham said in a joint statement on Thursday.

Economic growth is forecast at 3.75 per cent for 2021/22, a downgrade from a previous estimate of 4.25 per cent, but is now expected to grow by 3.5 per cent in 2022/23 rather than by 2.5 per cent.

For the calendar year, growth is seen at 4.5 per cent in 2021 and 4.25 per cent in 2022.

"Consistent with the strong economic recovery, the unemployment rate is forecast to reach 4.25 per cent in the June quarter of 2023," they said.

"The rapid recovery from the Delta imposed lockdowns is expected to see the addition of around one million jobs between October 2021 and the end of the forecast period, which is around 150,000 more jobs than forecast in the 2021/22 budget."

While forecasting wages growth of three per cent in 2023/24, in the immediate future, earnings are expected to lag the rate of inflation.

Wages growth is forecast at 2.25 per cent in 2021/22, while the consumer price index is put at 2.75 per cent.

They concede the global pandemic will continue to pose headwinds for the domestic and global recovery for some time to come.

"However, Australia's high vaccination rate and increased investment in health system capacity will assist in mitigating the challenges presented by the ongoing global pandemic, including managing new variants." –AAP