Green shoots in Australia’s economy could wither without further reform, claims a report urging the government to turn its recent economic roundtable into an annual fixture.
Household spending is ticking up, inflation is falling and wages continue to grow in real terms, signalling Australia’s long-awaited economic recovery is on track, Deloitte Access Economics found in its flagship Business Outlook report.
But Australia remains vulnerable to international economic uncertainty driven by Donald Trump’s trade war.
Boom times are not necessarily ahead, warned report co-author and Deloitte partner Cathryn Lee.
“Those green shoots point to growth, but it will remain a grinding and gradual recovery,” she said.
The report forecasts Australia’s economy will grow at an average annual rate of 2.2 per cent over the next decade, down from 3.3 per cent over the three decades prior to the pandemic.
Consumer spending has recovered stronger than expected in recent months, potentially scaring the Reserve Bank off future rate cuts.
RBA governor Michele Bullock on Tuesday said there was a chance households could become more comfortable spending rather than saving as disposable incomes recovered, which would be good for businesses but could make inflation more persistent.
But a healthy economy reducing the need for further cuts is not necessarily a bad thing.
“We’ll make that decision in November about whether it’s down again or maybe on hold again, and if the economy is continuing to recover, that’s really good news,” she told reporters.
Commonwealth Bank economists predict the Australian Bureau of Statistics’ monthly household spending indicator, due out on Thursday, will show consumer spending lifted 0.3 per cent in August.
“Spending has increased for three successive months and has lifted in nine out of the last 10 months due to low unemployment, lower borrowing costs and growing real household incomes,” CommSec chief economist Ryan Felsman said.
While falling interest rates continued to fuel economic growth in the short-term, underlying productivity challenges and weak business investment meant the positive momentum was likely to be short-lived, Ms Lee said.
Disrupted supply chains, ageing populations and debt-laden budgets meant governments around the world were ill-prepared for upcoming challenges, while low wage growth and surging asset prices were deepening the societal divide, she said.
“Future prosperity hinges on encouraging businesses to invest more.”
The government’s economic reform roundtable in August achieved some good quick outcomes, such as cutting red tape, but waiting until after the next election to implement major tax reform would be too late, she said.
Deloitte partner Stephen Smith said economists underestimated the “guile” of Treasurer Jim Chalmers, who arguably now has a broad mandate to implement policy change after using the roundtable to build consensus around the need to tackle intergenerational inequality.
“In that context, a regularly-convened roundtable which hashes out policy concerns, reform options and the best response to Australia’s economic and social issues would be valuable,” Mr Smith said.
“If that becomes the roundtable’s lasting legacy – shifting Australia’s political culture so that civil, constructive and forward-looking discussions are not the exception but the expectation – then perhaps its greatest reform was not economic at all, but democratic.”
While the report made clear the extent of the coming economic challenges, it also showed Australia had a lot going for it, Dr Chalmers said.
“We’ve made a lot of welcome progress together but we know the job isn’t finished because people are still under pressure, global uncertainty is intensifying, and there’s more to do to make our economy more resilient and productive,” he said in a statement.
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