As the clock runs out on 2024, news about the economy has not been so upbeat lately.
Should we brace for tougher times ahead, or perhaps the outlook is on the improve?
Jobs aplenty – for now
In the run-up to the election, the Albanese government will probably amp up the creation of 1m jobs since it took office (unless there’s an unexpected slide in the next few months). And why not – it’s the most obvious economic positive just now.
Critics tend to be more begrudging, highlighting the fact that the largest job gains in any government term have mostly been in the “non-market sector” – prompted by, if not directly paid for, the public purse.
In its mid-year economic outlook (Myefo) released this week, the government upgraded its forecasts to reflect the resilience of labour demand. Employment for this fiscal year should grow by 1.75%, up from 0.75% predicted in the May budget.
(Caveats, of course, apply to any forecasts – see final section below.)
So far in 2024, the economy has added more than 330,000 jobs; only March posted a modest monthly decline. There might yet be a pullback this month – last December recorded a hefty loss of 106,600 full-time jobs.
Underemployment, at 6.1%, is at a 19-month low, with overall unemployment at 3.9%.
The economy overall has kept expanding
When the RBA responded to the fastest run-up inflation in three decades with the steepest interest rate hikes by just as long, economists wondered how Australia might dodge a recession.
Rising population helped. (The RBA considers the added strains on housing demand are roughly balanced out by other benefits.)
Government spending also took up much of the slack. May’s budget anticipated public demand – which includes states and local authorities – would swell by 1.5% this fiscal year. Myefo’s revisions, though, more than doubled that to 3.75%.
Exclude those extra expenditures and the economy’s landing would have been hard. Headlines decrying soaring bankruptcies would have blasted government inaction, stories of families’ lives upended would have multiplied, as would photographs of boarded-up shopfronts.
Sure, firms such as CBA and Telstra have whittled their workforces. Chemicals maker Qenos or regional airline Rex have lately closed or slashed operations and builder failures have leapt.
Some of those failures, though, were masked by the Covid-era handouts. The surprise might be that corporate casualties haven’t been greater given interest rates have hovered at 13-year highs for 13 months (and at least two more).
Tax cuts in the nick of time
At the start of 2024, calls mounted for the government to revise the stage-three tax cuts to favour more of those on lower incomes.
When it heeded those demands, some worried a pulse of extra consumption would make it harder for the RBA to quell inflation. Others decried a broken promise.
However, it was pretty clear inflationary effects would be minimal; anyway, the central bank had already factored in a $20bn-plus demand injection from the cuts.
If anything, households have been more cautious than anticipated. The cuts, though, enabled them to trim the share of disposable income going to repay mortgages “a little in the September quarter”, the RBA noted.
“While debt payments are high, nearly all borrowers are expected to be able to service their debts even if inflation and interest rates remain high for an extended period,” it said.
Real wages, wealth continue to rise
While Australia’s GDP has kept expanding, output per person has contracted for a record seven quarters in a row (and the December quarter may make it eight).
However, wage growth has outpaced consumer price inflation (if not underlying inflation) for a full year. Ongoing labour market tautness suggests the trend of real-wage increases will run for a while yet.
Myefo pared the budget’s wage price index forecast to 3% by next June and 3.25% by the following one. Wages should, though, keep narrowly outpacing CPI and its predicted rate of 2.75% pace for both years.
The RBA, too, predicts wage growth will outpace inflation at least until June. The central bank presently predicts a rebound in CPI from next July.
It’s hard to imagine, however, that Labor and the Coalition will go to the polls without promising fresh energy and other rebates that suppress headline inflation for another year.
Household wealth, meanwhile, has climbed for eight quarters in a row, the Australian Bureau of Statistics stated on Thursday. By 30 September, households had amassed assets worth $16.9tn, up almost 10% from a year earlier.
Mixed tidings
Private investment has been among the big disappointments lately. Government outlays can’t carry the economy indefinitely (with states like Victoria starting to pull back) and weak productivity growth will flatten the slide in interest rates when it begins.
The May budget predicted private demand would grow by 1.75% this fiscal year, or similar to the 1.8% growth clocked in 2023-24. Now Myefo has slashed that to just 1% for this year (2024-25).
But some positive stirrings are emerging – particularly as the prospect of RBA rate cuts brighten. (Odds now point to a three-in-four chance of a February cut, with another priced in by July.)
Westpac’s latest survey with the Australian Chamber of Commerce and Industry found manufacturers ended 2024 finely balanced between those expanding and shrinking. However, expected conditions were at their highest since September 2022.
To be sure, events can overwhelm any oracle. Climate extremes will get worse in unpredictable ways. A returning Trump administration could turn out to be meek or manic, Beijing may fail to arrest the slowdown in China’s economy (hammering Australia’s exports and royalties), and tensions in the Middle East or eastern Europe could worsen yet more.
At home, challenges include the risk that increasingly creaky coal-fired power plants could trip during heatwaves (or cold snaps). A weaker dollar could also delay RBA rate cuts.
The economy may well be tested soon but it does seem on a mild but welcomed upturn.
