Bleaker Economic Growth Times Ahead for Australia
The Global Economic outlook is looking bleak, especially for next year. Inflation in many economies still looks significantly higher than its target. Even the Core inflation (excluding food and fuel prices) is obstinately increasing in many countries. Despite the Central banks’ efforts to slow aggregate demand, many Western economies are going to experience recession sooner or later part of the next year. In this article, we are going to have a look at the Australian Economic Growth and IMF forecasts on the Australian Economy.
Gross Domestic Product (GDP):
The GDP growth is to remain low for the rest of the year due to pressures on the cost of living and the rise in interest rates to control domestic demand. Labour Market conditions are to ease gradually in the coming months.
According to the Press Release of the Australian Bureau of Statistics the first quarter GDP has increased by 0.4% for the seventh consecutive time. The key contributors to the GDP growth for this quarter are Investments and exports which are partially balanced by changes in inventories.
On a year-on-year basis (the FY for Australia is from June to June), Australia’s GDP had a growth of 3.4% in 2022-23 which is above the 10-year pre-pandemic average of 2.6%. Through the year growth was lower at 2.1%.
The nominal GDP declined by 1.2%. The GDP implicit price deflator (IPD) has decreased by 1.5% this is due to the largest quarter fall in terms of trade from June quarter 2009.
The terms of trade decreased by 7.9% (i.e. -7.9%) this decrease is due to a decline in export prices (-8.2%). Import prices also declined marginally by 0.3%.
Inflation is Easing
The Consumer Price Inflation (CPI) has increased marginally by 0.8% in the June quarter. This is 6.0% in the past 12 months (i.e. yearly/annual inflation). This is the second consecutive quarter of low annual inflation; down from its peak of 7.8% in the December 2022 quarter.
Foor Prices increased by 1.6% during this quarter while housing costs (in CPI terms) increased by 0.8%.
In the June quarter, CPI continued to decline. Goods prices have eased on the contrary services prices have increased persistently. Inflation is expected to decline to around 3.25% (or say 3¼ percent) by the end of 2024 and to be within the target range at 2.75 (or 2¾ percent) by 2025.
Divers of Growth – Investment and Exports
Investments and Exports are the key drivers of Growth. The domestic final demand contributed 0.7% to GDP growth. Investments contributed 0.5% to growth. Within the investments, private investment increased by 0.6% whereas public investment increased by 8.2%.
Consumption, on the other hand, has increased by 0.1% to GDP. Within consumption, household consumption has increased by 0.1% – though household consumption has increased it has slowed down.
On the Trade side, the Net trade has increased by 0.8%, with exports increasing by 4.3% which is partly balanced by a marginal increase in imports by 0.7%.
Inventories recorded a decline of $3.4 billion this quarter which facilitated the rise in exports. The predominant problem of GDP growth is changes in inventories. As grain inventories were exported after the recent harvests, the wholesale trade inventories declined.
There was an increase in Exports of Goods and Services by 4.3%. The service sector has increased by 12.1% mainly due to education and personal travel. Whereas Exports of goods have increased by 2.5% mainly due to mining commodities.
Imports of Goods and Services have increased by 0.7%. Within the imports, the imports of services increased by 4.7% which was partly balanced by goods imports with a decline of 0.2% (i.e. -0.2%). Imports of travel services have increased by 11.2%.
Household Savings and Incomes
For the Seventh consecutive time, the household savings ratio has declined from 3.6% to 3.2%. This is the lowest level since June 2008.
On the other hand, the Household gross income has increased by 1.8%. The income from labour has increased by 1.6%. Non-labour income also increased as interest received on deposits had a growth of 10.7% mainly due to an increase in interest rates over the quarter.
Household income payable has increased by 3.7%. Income tax has increased by 2.2%.
IMF Forecasts of Bleaker Economic Growth
The Australian growth story is looking bleaker than it is expected last year. The IMF has revised its GDP growth projection for 2024, from 1.7% in April to 1.2% in the October 2023 world economic report. Here it is to be noted in the Australian growth story that 1.7% growth itself is s terrible now it is projected at 1.2% which is historically low. The IMF has projected that even in 2028, the Australian Economy will reach or grow at 2.3%.
Australia’s unemployment rate has also revised and increased. Earlier in April the IMF in its WEO Report, forecasted that unemployment would be 4.1% in 2024. But, in its October Report, this is revised and now the unemployment is estimated to be up to 4.3% in 2024.
IMF in its April WEO Report, expected that inflation would be below 3% in 2025, however, in its October report, the forecast has been revised and 2.6% of inflation is expected in 2028.
Conclusion – My perspective
The Australian growth story is looking bleaker than even one could have anticipated earlier. However, the real concern is that the unemployment rate is expected to increase in the coming years due to a weak growth rate. The tighter labour market and increasing energy prices are a real concern for the Australian economy. If the policymakers can address these two issues then the Inflation may ease sooner than later. This will help the economy to move further easily.
If the Australian growth story has to be continued then it is mainly dependent on an increase in public demand, Education as well as travel to boost its exports, and also the terms of trade. An Economy which depends much on external factors can hardly make an economic policy which can take care of its own growth.
