Australia's "strong
economy" has been the Coalition's mantra throughout the election campaign.
Earlier this month, the
Liberal Party created a meme of a smiling Scott Morrison armed with a
lightsaber and dressed as a Jedi alongside the slogan: "The economy is
strong with this one."
And Labor, loathe to
campaign on what it sees as the Coalition's territory, has barely challenged
this proposition.
Yet the evidence
suggests the claim is more rhetoric than reality.
On just about any
measure, the economy is not strong — and any enduring pretensions that it is
have been undermined by no less an authority than the Reserve Bank of Australia
(RBA).
Its latest monetary policy statement has revised
down economic growth for this financial year to just 1.7 per cent — more than
half a percentage point below its previous forecast.
That contradicts
Treasury forecasts in the Budget, which are barely a month old and were
reaffirmed by Treasury even more recently in the pre-election economic and
fiscal outlook.
Home values and
household wealth have plummeted amid one of the biggest property slumps in
Australia's history.
Although employment
growth has been reasonably strong, driven by the public sector and community
services, key sectors that drive the economy are shrinking.
Manufacturing,
construction and retail trade have all shed tens of thousands of jobs over the
past year — the building industry layoffs are a product of a massive slump in
dwelling investment, which the RBA reckons will continue for years.
Some better headline
data mask gloomier realities
Only high rates of
immigration have stopped Australia lapsing into a formal recession.
Similarly, an
unemployment rate mired at 5 per cent, which is not high by the standards of
recent decades, disguises the true weakness of the labour market.
More than 13 per cent of
the workforce is underutilised — either unable to secure work at all or the
hours they need — and a disproportionate share of the jobs growth in recent
times has been poor quality: casual and contract jobs in relatively low-wage,
low-productivity sectors.
The Reserve Bank is
betting on the unemployment rate staying where it is, but others are less
optimistic.
Westpac's Bill Evans,
one of the most long-standing and respected market economists, predicts that
developments in the labour market over the next three months will disappoint
the RBA with a "deterioration of the labour market" over the coming six
months and "continued weak inflation".
This downturn in the
economy is largely homegrown — the product of weak wages growth and the
unwinding of an unsustainable property boom that left households saddled with
enormous debts.
Yogi Berra, the
legendary US baseball star and coach, famously observed that "it's tough
making predictions, especially about the future", and it's a maxim that's
often born[e] out in economic forecasting.
But you don't need a
crystal ball to realise that whoever forms government after the federal
election will inherit a sluggish economy, not a strong one.
The Reserve Bank's new
line in the sand gets its first big test with the latest reading from the jobs
market this week.
The persistent
head-winds of low inflation has seemingly blurred, if not blown away, the RBA's
previous markers — parallel lines which were intended to corral inflation
between 2 to 3 per cent for as far as the eye can see, or an economist can
forecast.
Governor Philip Lowe
made it clear a further improvement in the labour market was needed to get the
economy out its rut and back in the groove, growing at its full potential.
No back-tracking on this
one for the RBA. Lower unemployment and underemployment — where workers are
searching for more hours to make ends meet — will soak up the spare capacity
sloshing around the economy, inflation gets back to where the RBA wants it and
GDP grows at its long term trend, or better.
That's still a long way
off, even using the RBA's recently updated and far from pessimistic forecasts......
According to
the Australian
Bureau of Statistics, over the twelve months to the March quarter 2019
the living costs for self–funded retiree households fell by -0.2%, while the
living costs for age pensioner households and other government transfer
recipient households rose by 0.3% and 0.2% respectively. Employed households living
costs remained unchanged over the same time period at 0.1% above CPI.
It should be noted that penalty rates for retail workers will be further reduced by 15% of the base wage rate on 1 July 2019 and 1 July 2020 as per Fair Work Commission 2017 decision.
