A passenger ferry sails out of the Sydney Harbour during sunset on July 11, 2022. (SAEED KHAN / AFP)
Australia’s Labor government is facing the country’s worst economic crisis in decades although in office for less than half a year.
Inflation, currently standing at a 21-year high of 6.1 percent, is forecast to peak at nearly 8 percent by the end of the year as interest rates continue to rise, impacting on jobs, growth, and real wages.
The government has cut its growth forecast for the 2022-23 financial year from 3.5 percent to three percent with the forecast for 2023-24 expected to be two percent
The government has cut its growth forecast for the 2022-23 financial year from 3.5 percent to three percent with the forecast for 2023-24 expected to be two percent.
Workers, who have taken to the streets demanding better pay and conditions, have been told by the government not to expect a real wage increase until 2024.
All this comes as the United States, the world’s biggest economy, raised interest rates sharply three times in months and looks like slipping into recession.
In its latest World Economic Update, issued on July 26, the International Monetary Fund said the world is facing “an increasingly gloomy and uncertain outlook”.
Treasurer of Australia Jim Chalmers told parliament on July 28 that the country was in for a “rough ride”, describing its economic problems as “complex” and not helped by the Ukraine crisis, COVID-19 and broken supply chains.
“Economically everyone is in for a rough ride, but some are faring better than others, ” said Tim Harcourt, chief economist at the Institute for Public Policy and Governance (IPPG) at the University of Technology Sydney (UTS).
“We are certainly doing OK but, in the US and Europe, the picture is not looking all that good,” he said.
Chalmers said the labor market in Australia has held up “quite nicely” due to the fact that COVID had stopped “immigration for a couple of years”.
Edwina MacDonald, acting CEO of the Australian Council of Social Service said the cure for inflation should not be job losses and pay cuts.
ALSO READ: Australia sees highest COVID-19 death toll in recent months
The Treasury predicts the unemployment rate will rise from 3.5 percent to 4 percent over the next two years, if interest rates increase as financial markets expect.
“That may not sound much, but we estimate this means around 75,000 more people would be consigned to the unemployment queue,” said MacDonald.
Saul Eslake, independent economist and the vice chancellor’s fellow at the University of Tasmania, said Australia’s economy is likely to slow.
He said Australia’s main economic problems include persistently low productivity growth and a possibly unhealthy dependence on immigration to ‘solve’ labor shortages and drive economic growth.
ALSO READ: Australia declares monkeypox disease of national significance
He blamed a host of other factors, from high house prices to an over reliance on fossil fuels, for exacerbating the situation.
Eslake said he expected inflation will continue rising as the treasurer had forecast for at least the remainder of this year.
“Much of this will be driven (by), among other things, higher household electricity and gas costs, the expiry at the end of September of the temporary reduction in fuel excise, continued upward pressure on prices of imported goods, and possibly higher labour costs,” he said.
Eslake added that there may be some respite by early next year.
Secretary of the Australian Council of Trade Unions Sally McManus said, “Australian workers are facing one of the worst collapses in their living standards that this country has seen.”
ALSO READ: Australian inflation speeds to 21-year high, peak still to come
“Inflation is not caused by wage growth, it is caused by global issues, floods and businesses putting up prices to increase their profit margins. The big risk to the economy is slowing consumer spending driven by wage stagnation,” McManus said.
Writing in The Australian newspaper on July 29, the Business Council of Australia’s Chief Executive Jennifer Westacott said there were almost 500,000 unfilled jobs in Australia.
“Steps must be taken to attract workers back to our shores at the same time as extending relaxed restrictions on international students maximum working hours until the end of the year,” she wrote.
McManus said the number of unfilled jobs is more than double pre-pandemic levels and the second lowest in the OECD behind Canada.
“The workers drought means some companies have simply stopped tendering for projects. Australia needs to reinvigorate its brand as a welcoming destination for the world’s best and brightest talent,” she added.
READ MORE: Australia's central bank raises inflation forecasts drastically
But despite the gloom, some economists expressed optimism. Cherelle Murphy, the chief economist for EY Australia, said a lot of positives remain.
“We do have a very highly employed labor market and we’ve got the highest workforce participation rate in history,” she told Guardian Australia on July 29.
Interest rates, while on the rise, also remain “quite low”, Murphy said, and there is no indication that the spectre of recession is stalking Australia as it is many other rich nations.