Economic outlook ‘delicate’ despite strength | Liverpool City Champion
Australia’s economic recovery has been faster and better than expected, with staggeringly low unemployment and soaring commodity prices, but what happens next is unclear.
The latest Deloitte Access Economics Business Outlook warns that the current growth will not last.
“We have surfed the current wave spectacularly well, but it has taken us as far as we can go,” said eminent economist Chris Richardson.
“Now comes the tricky part. Commodity prices will go down and interest rates will go up.”
He said Australia’s running costs had risen and it would take a “complicated national conversation” to figure out how to pay for the extra defense and social security dollars.
“But instead, we have the usual Seinfeld election – an election about nothing, in which both parties have essentially the same policies and pretend that this will do.”
Deloitte Access Economics sees inflation as less of a risk than in other economies because wages aren’t rising and the strong Australian dollar limits import costs, except for gasoline and shipping.
But with central banks moving in convoy, Mr Richardson expects the Reserve Bank of Australia to raise rates soon.
A consolation for mortgage holders and commercial borrowers is that markets are unlikely to be right to pick an official exchange rate of more than 3% by the end of 2023, he says.
“It would slow the economy significantly and exceed expectations for lower inflation,” Mr Richardson said.
Crucially for Australia and our biggest trading partner, the glory days of double-digit Chinese growth are over.
The “biggest wild card” for global growth this year could be the COVID-19 outbreaks in China and how that could disrupt supply chains across industries.
In the meantime, the post-pandemic global recovery is supporting Australian exports and the war is driving up prices.
Russia and Ukraine sell energy and food to the world, but so does Australia.
“Current conditions mean a pay rise for Australia of simply epic proportions,” Mr Richardson said.
Coal, gas and iron ore exporters stand to benefit, which will also help state and federal government budgets.
The State of the States report released Tuesday by Commonwealth Securities found that all states and territories are doing well.
Economic activity in Fortress Western Australia in the year to December was 36.1% above the decade average.
Looking at the year to March, employment in all states and territories recorded annual gains.
Western Australia and South Australia performed best with employment growth of 4%, followed by Queensland (up 3.8%).
“Opening local and foreign borders will continue to support Queensland’s economy,” said CommSec Chief Economist Craig James.
“And Western Australia could also benefit from reopening borders, but to a lesser extent.”
Tasmania is still the best performing economy overall on eight indicators, followed by Victoria on strong retail spending and housing finance, with Queensland and WA tied for third.
The ACT and South Australia are tied for fifth, NSW seventh and the Northern Territory bottom.
Australian Associated Press